MicroStrategy'due south stock, MSTR, is preparing to undergo a massive bull run in the sessions ahead.

So shows a technical setup, dubbed changed head and shoulder, that has a history of predicting upside moves with an accuracy of 83.44%, every bit per Samurai Trading Academy's inquiry. MSTR appears to have formed a similar bullish construction, equally shared by independent marketplace annotator Bob Loukas.

MicroStrategy stock daily nautical chart featuring inverse head and shoulder setup. Source: Bob Loukas, TradingView

In detail, an inverse caput and shoulder (IH&South) is when the price forms three troughs in a row, with the centre ane (head) deeper than the other ii (shoulders). Meanwhile, all the troughs hang by a cost ceiling (neckline).

Traditional chartists consider IH&Due south equally bullish if the price breaks higher up the neckline with higher volumes. In doing then, the price expects to rising by as much as the altitude between the heart trough'due south lesser and neckline.

Applying the classic definition to the MSTR chart, the next profit target for the stock appears near $1,478, almost twice the current bid range.

Is MSTR a shortcut to proceeds Bitcoin exposure?

The upside outlook for MSTR appears as it continues to stay positively correlated to Bitcoin (BTC), a highly volatile cryptocurrency propagated as "digital gilt" by its hardcore enthusiasts.

MicroStrategy owns 105,085 BTC worth around $5.23 billion as Bitcoin's toll returns to $l,000. In fact, the Nasdaq-listed company's exposure to Bitcoin has made MSTR a quasi-proxy for the flagship cryptocurrency.

MSTR daily cost chart versus BTC/USD. Source: TradingView

MSTR has gained momentum, peculiarly amid aggressive traders — those with a higher appetite for risks — with its twelvemonth-to-date returns at present at 65.21%.

At the same time, Bitcoin prices accept climbed 68.22%, with many analysts now anticipating the BTC/USD rates to accept doubled by the terminate of 2022 and hitting $100,000.

But MSTR and BTC/USD showed signs of decoupling afterwards June. In the period, the MicroStrategy stock limited its downside moves against a comparatively aggressive bearish trend in the Bitcoin market. Financial analyst Alexander J Poulos spotted the divergence, noting that information technology could have been due to Capital Group's investment in MicroStrategy.

In June, the The states-based financial services visitor, which runs the American Funds family of mutual funds, bought a 12.2% stake in MicroStrategy. Poulos stressed that Capital Group'southward $600-one thousand thousand investment was an indirect way for it to gain exposure to Bitcoin.

"With the SEC not approving a pure-play BTC ETF [commutation-traded fund], MSTR volition continue to serve every bit a proxy for fund families," he said, adding:

"The movement past the Capital Group is non an outlier. I await others to initiate or add together to their existing positions."

A high-risk play

MicroStrategy has amassed heavy debts to buy Bitcoin. Therefore, considering it could sell its crypto holdings to respect its financial delivery to bond investors could exist a potentially negative result for MSTR.

In his SeekingAlpha op-ed, Joshua Sorto, the staff auditor at MNCPA, wrote that MicroStrategy could easily pay dorsum the debt on its first $650-1000000 convertible annotation — MSTR is already trading above $517 to convert notes into shares that do non require MicroStrategy to sell the Bitcoin inventory.

Merely the 2nd convertible notation has a conversion rate benchmark set up at $i,432.46. That said, MicroStrategy would need to accept tripled its market valuation by 2027, which means MSTR would need to rise over 100% earlier the bond's maturity.

"In order for MSTR to exercise that, the analytics business volition have to produce cash flows of $125 1000000 per quarter; at the moment, it's running at less than half that level," Sorto said while referring to MicroStrategy's 2nd-quarter earnings.

The third annotation is not convertible. MicroStrategy has bought 13,005 BTC with about one-half a billion dollars worth of proceeds. So, whether or not the firm will pay off its debt depends majorly on Bitcoin'due south operation until 2026.

Related: MicroStrategy stock slides after announcing new $400M debt raise to buy Bitcoin

In its filings with the U.Southward. Security and Exchange Commission, MicroStrategy revealed a total of 49 risks, 47% of which concerns finance and corporates. Also, the risk tally comes to be higher than the S&P Average of 31.

MicroStrategy risk disclosures. Source: TipRanks

Poulos admitted that he is bullish on Bitcoin in the coming years, which, in extension, means he is besides bullish on MicroStrategy. Sorto likewise expressed a similar outlook, noting that MSTR's association with a booming Bitcoin industry would have the stock retain its upside outlook long term.

"At that place are no storm clouds on the horizon, but a few clouds in the altitude are worth monitoring," Sorto wrote.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves take a chance, yous should bear your ain research when making a decision.