The stock market brings with it a ton of opinion. It also brings many trading styles. Each Saturday SiriusBuzz will point out some technical points that investors can consider as they contemplate their next move in Sirius XM the following week.
This week I want to note key resistance and support levels, volume, and exponential moving average (EMA). These factors are things that sometimes get overlooked, but are easy to access and track if you simply take the time to invest a few minutes.
Resistance and Support
Sirius XM closed at $1.07 on Friday, at the high of the day. As it happens, the equity closed directly on a key resistance level that also happens to be the strongest. The move happened on lighter than normal volume, which has been anemic over the past week. What we have going on here is a type of equity confusion. This confusion creates consolidation, and is often the signal that an equity is going to make a move one way or the other in short order. Current support and resistance levels:
Resistance - $1.23 weak
Resistance - $1.14 weak
Resistance - $1.07 strong
Support - $1.02 moderately weak
Support - $0.98 weak
Support - $0.92 moderately weak
Support - $0.89 weak
Support - $0.84 very strong
As you can see, the current price of Sirius XM sits right in the middle of support and resistance levels that are not very strong. The good news is that if the equity can break above $1.07 it has little to hold it back from a technical standpoint. The bad news is that there is little support below until you get to $0.84. Sirius XM is an equity in an identity crisis, and investors are at a difficult cross-roads. This shows in the volume as well.
Now that we know the support and resistance levels, lets look at another popular technical metric and see if that can shed some light onto what the possibilities are. Exponential Moving Averages:
5 Day - $1.07
13 Day - $1.08
20 Day - $1.08
50 Day - $1.02
As you can see, the moving averages are all in a tight range, and Sirius XM sits right below these key data points. This is yet another sign that consolidation has been happening in this equity. The good news is that most indicators on the exponential moving averages are bullish. The bad news is that in the short term, they are a bit bearish. Naturally there are many who want to know how these EMA's are read. It is actually quite simple. If you are at or above an EMA the indication is bullish. If you are below the EMA the indication is bearish. You then look at these data points relative to each other. The chart below explains:
As you can see, short term indicators are bearish, while longer term are bullish. However, you can also see that the moving averages are converging which could lead to a breakout. In my opinion, the bullish indicators are a bit stronger than the bearish. Can the equity go either way? Yes it can. So what else can give an indication? Volume.
My thoughts on volume are relatively simple. Light volume is indication of consolidation. Moderate volume is a sign of a move. Heavy volume is a sign of a move with conviction. Thus:
- Up on light volume means there is a lack of conviction with the move. A retracement is easy for the market to digest.
- Down on light volume also shows no conviction, and thus an upward move to recent previous levels is easy to digest.
- Up on heavy volume shows conviction and establishes new support/resistance levels.
- Down on heavy volume also shows conviction and also establishes new support/resistance levels.
- Continuous moves in one direction on moderate volume are healthy moves and build stronger foundations.
- Volume getting lighter means the conviction at that level is losing strength.
- Volume getting heavier means there is still steam in the move.
Reading volume is just as much an art as it is a science. Today, Sirius XM moved up to a key level on higher volume than the previous couple of days, but well below the average volume. This would seem to indicate that the move up has some confidence, but not very much. Combing and understanding a few technical ways of looking at an equity is a healthy exercise. There is no magic key, and no indicator is absolute. If you are going to get technical, become well rounded at it, but most of all understand the basis of it if you are going to use it in your trades.
Overall, for the short term I would categorize SIRI as slightly bullish with a caution if it approaches $1.02 on a dip.
Position - Long Sirius XM