It goes without saying that Q1 of 2009 will be terrible for most companies. It appears that Wall Street, when considering Sirius XM as an investment going forwarded, is now looking well past its first quarter's results. Much has been written regarding Sirius XM's 200% rise in its stock price these past few weeks. Such a sharp rise is often a call to question whether or not such a continued rise is sustainable.
In cases such as this, clues can often be found through technical analysis. Although it is best to use a combined strategy of fundamental and technical analysis when making making investment decisions, I will focus on a few technical aspects of Sirius XM.
Depending on the charting system that a person chooses to utilize, there is a distinct pattern developing. Technicians refer to them as bullish triangles, bullish pennants and bullish flags. The rectangular flag shape is the product of consolidation. Consolidation occurs when the price seems to bounce between an upper and lower price limit as fewer buyers are willing to pay the high price that was commanded just days before. Conversely, sellers are unwilling to sell below a lower support limit. The charts demonstrate that this bullish pattern is occurring with Sirius XM common stock:
The above example indicates the high pole which was followed by congestion that resulted in 2 parallel lines downward while maintaining the uptrend, qualifying this as a bullish flag pattern. Other types of charts indicate a bullish pennant formation:
Flags and pennants represent pauses while a trend consolidates and are reliable continuation signals in a strong trend. The technical target price based on this trend would be approximately .64. On a percentage basis, this represents a potential 75% increase from Friday's closing price that traders will be looking at very closely, as the trend continues to develop.
The only missing puzzle piece is the time frame in which the uptrend will resume as a catalyst is often needed. In SIRI's case, such a catalyst may come Monday in the way of positive news from the Obama administration regarding GM and Chrysler.
Position: Long Sirius XM