Sirius XM Radio is a stock that has seen its ups and downs of late. In many ways being invested in this equity is like getting onto a roller coaster. traders love the action in Sirius XM. Shorts love to hate the company, and longs carry a passion guided by the future potential they see in the company.
Over the past few weeks we saw the moving averages converge, key support and resistance levels broken in both directions, and swings of up to 20% happening in short periods of time. The stock has been a traders dream. It was only a week ago that all indications on Exponential Moving Averages (EMAs) seemed to be pointing in a bullish direction. Now, the picture looks much more bearish.
Stepping aside from technicals, and looking purely at fundamentals, it can be reasonably argued that at a price of $1.05 that Sirius XM is fairly valued. At $1.05 Sirius XM is trading at 18X EBITDA growth projections for this year. That multiple is fine if the company is able to grow EBITDA at that level, however, where is that type of growth going to come from in 2011 and beyond. It is this question that has most analysts seeing fair current value and tending to be more conservative going forward. Sound technical analysis must consider the fundamentals of the company.
The Exponential Moving Averages have now shifted to a bearish outlook. Key support levels have been broken, and volume has not been as strong as we would hope. On the the flip side, SIRI has been labeled as an equity that is "Hard-To-Borrow" by Schwab. Once garnering this label, the short side on this equity needs to consider closing their position and taking their profit.
While EMA's are all bearish now, the key technical point I want to focus on this week is support and resistance levels because these are what are likely to be tested in the days to come.
Resist. - $1.23 - Very Weak
Resist. - $1.14 - Very Weak
Resist. - $1.10 - Moderate
Resist. - $1.04 - Weak
Resist. - $0.99 - VERY STRONG
Suppt. - $0.92 - Moderate
Suppt. - $0.89 - Moderate
Suppt. - $0.84 - VERY STRONG
Suppt. - $0.82 - Weak
Currently Sirius XM Radio sits in the middle of two key levels. Support at $0.84 and Resistance at $0.99. There is a strong possibility that Sirius XM could test the support level at $0.84. This is more a function of the overall tone of the markets rather than a reflection on SIRI itself. The resistance at $0.99 is very strong and will be a test for SIRI to break through. The range between $0.84 and $0.99 represents a 20% window that traders may play with for a while.
Now that the third quarter has begun, eyes will be focused on the Q2 report from SIRI and the speculation that surrounds it. Overall, most people expect the numbers to be good, but expectations and seeing the numbers in black and white are two different things. Last quarter Sirius XM pre-announced some key metrics, and that happening again is not beyond reasonable thinking. The company should have positives in many metrics because of the OEM sales that happened in Q2. With pressure to get and stay above $1.00, I find it quite likely that we will see some information flowing from the company.
There are a lot of moving parts for investors to consider, and an established range of trading. When outside factors begin to show thorugh, it will set the tone for Sirius XM.
Position - Long Sirius XM Radio