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TECHNICAL ANALYSIS


Microstrategy Inc, Is Still Under A Dark Shadow

08/09/07 12:53:22 PM
by Chaitali Mohile

MSTR stands on major support after a bad week, but an increase in bullish pressure would bring in a relief rally.

Security:   MSTR (Microstrategy Inc.)
Position:   N/A

The correction of the bearish wave that took place towards the end of July was seen in stock markets globally. Many stocks as well as indexes hit or broke below their support levels when the correction started. Microstrategy broke below its major 200-day EMA and reached a strong support-resistance zone of its low pivot. The stock had been in an intermediate downtrend from early April 2007 with a failed ascending triangle breakout. Ascending triangles appear in uptrends as continuation patterns and on breakout, the stock-index continues its previous upwards rally. But in Figure 1, MSTR broke down from the ascending triangle, indicating that a correction could be underway.

Fig 1 weekly chart. Positive indicators with higher volume can pull MSTR back in bullish run. Doji signals indecision can lead even lead to consolidation near support area of $75.
Graphic provided by: StockCharts.com.
 
MSTR slipped below its 50-day EMA and entered an intermediate downtrend losing major gains. In addition, last week's correction saw the stock plunging to its low pivot. On July 30th the stock saw some relief, but Microstrategy was stuck at its support-resistance area. A doji candlestick indicated lack of confidence among traders. Though the stock is standing on a major support area, indicators are not in favor of a bullish move. The moving average convergence/divergence Macd (12,26,9) is still in a negative area after a bearish crossover. Average directional index, ADX (14), is under the possession of the bears.

The average directional index (ADX 14) on the daily chart reconfirms the intermediate downtrend from early April 2007. A bearish moving average crossover poured in more weakness in the downward rally. The stock is now under strong resistance at its 200-day EMA and the 50-day EMA is tipped down, so a bullish rally is still far away. The stock was worth 135 in April 2007 and crashed down to 75. The MACD (12,26,9), which is in a negative zone, gave bullish crossover in mid May 2007 but price was reluctant to move up. However, with the recent bearish crossover in the same negative zone, prices plunged 20 points from the 95 levels.

Fig 2 daily chart. Bearish moving average crossover adds bearish bais to the stock.
Graphic provided by: StockCharts.com.
 
Although MSTR has found good support at its low pivot, bearish indicators have kept buyers away. An increase in buying volume may help Microstrategy join the relief rally in the market. Volume support is equally important along with positive indicators for the bullish move.



Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address: chaitalimohile@yahoo.co.in

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