Sirius XM: What’s Going On With The Stock? Part 1
Probably the most common and frequent question I receive regarding Sirius XM is; “What’s going on with the stock?” It certainly occurs regularly on our weekly SiriusBuzz Radio show. I thought I’d take this opportunity to answer that question.
Recently Mel Karmazin made a statement that he couldn’t control the stock, only the company. And he is right. Stock prices are dictated by the law of supply and demand. If there are more buyers than sellers, the price goes up; more sellers than buyers and the price goes down. It really is that simple.
It is out of this simplicity that technical analysis was created. Ironically, many technical charting tools can be so complicated that they bewilder individual investors. They can also give false signals because they react to every tick. One of the most simple and accurate types of technical analysis is point and figure charting. It’s a simple system that takes out of the equation day to day fluctuations and paints a clear picture of the trend of any given equity. This is a system anyone can learn and it does not even require a computer. A sheet of graph paper is all you need. In fact, Dorsey, Wright & Associates introduced me to point & figure charting many years ago and they offer a free charting tutorial on their website.
For long term investing there is no better way of understanding the stocks in your portfolio. I have created a small chart below that represents the activity of Sirius XM stock for the month of August. I have also abandoned the standard box size because Sirius would have to rise to 3.00 to indicate a positive trend reversal, and we would miss out on over a 100% gain by the time we realized it.
The number 8 represents the month. O’s are downward movements. X’s are upward movements. Clearly we can see that the stock bottomed and held at 1.30 on 3 separate occasions. Today we ran into resistance at 1.49. Looking at this chart makes it clear that resistance would be found at 1.49, before it ever occurred.
My best guess is that we may trade within this range for the next few weeks. By viewing it in this manner an investor is better able to identify tops and bottoms, and makes any potential negative reversals less intimidating. The key to it is that it requires a 3 point reversal to change the direction on the chart. The trading range is so tight here, that a reversal to 1.30 would be required to change the direction of the chart. Longs will want to see the stock hit 1.50, as this would indicate a positive breakout. Shorts would want to see 1.25, as this would certainly be a sign of further losses.
We seem to have an established bottom, and as of today an established top. I hope I have made this as simple to understand as possible. I will be available to answer any questions regarding any of this on the SiriusBuzz forums.
Now the question becomes; Will supply or demand win out in this epic battle? Stay tuned! And get charting!
8<— August 1, 2008………………1.65
O……………………………………..1.60
O……………………………………..1.55
O…X…………………………………1.50 (Reaching 1.50 would be a double top breakout)
O…X…O…X……..X……<——-……1.49 This is a double top at 1.45, indicating resistance to 1.50
O…X…O…X…O…X ……………..1.40
O…X…O…X…O…X………………1.35
O……..O……..O…………………..1.30 This is a triple bottom, indicating support (3 o’s)
……………………………………….1.25 (Reversing to 1.25 would be a triple bottom breakout)
Tried 2 times again Brandon. The post has a link which might not be allowed.
By no means am I a technical trader, but have found the MACD is the most valuable tool to spot trends and anticipate direction. Take a look at the MACD from June, set to 26/12/9 which is Yahoo’s default settings.
http://finance.yahoo.com/echar.....=undefined
A cross between the 26 and 12 has occurred on Friday, corresponding to an uptick in the pps, but we all can agree that we don’t need a chart to realize the price has increased over the last few days.
Overbought and Oversold conditions show as divergence between the 12 and 26 EMA (RED and BLUE lines). You can see the overbought condition by the spike around July 24th @ $2.75 by maximum divergence confirming the overbought condition and the rapid reversal as the divergence crossed the other way around indicating an oversold condition on August 8th @ 1.32 , which by the way was my entry point, not to rub it in, just being in the right place at the right time. At first glance you would think that you don’t need a chart to realize this, but these lines don’t move sharply and crossing represents the short term trend of the pps in definately up..
For me, another good indicator is the MFI (money flow index). Which represents positive and negative (BUY and SELL) cash flows. Equalibrium is a value of 50, selling will drop the value, buying will raise the value. SIRI has a lot of “false starts” during the last few months, showing MFI wanted to rise off it’s lower levels but was shorted back down. IMHO those days are over and it’s too risky to short anything but a 30% price pop in a single day. There is also a tremendous amount of shares shorted under $2.00 so a positive press announcement associated with the TA could cause a nice mini squeeze by Labor day sending the pps well above the $2.00 range.
I trade as a hobby and my knowledge of TA is just enough to be considered dangerous and by no means am an expert, so don’t go buying this stock on what I say. The more I look into SIRI the less I want to swing trade it and just go long and hold my shares for a few years.
The problem with MACD is that it is a lagging indicator and does not work well with volatile stocks. Sirius is one such highly volatile stock.
Brandon:
Let’s see how this pans out. My prediction based on TA is a close somewhere around 1.60 on August 22nd, and 1.80 on the 29th. Where it goes after Mel’s come to Jesus meeting is anyone’s guess.. Good Luck Buddy… :-}
Every penny SIRI goes up the big money will be shorting to protect their principle in the convertible bond market. I am buying more shares next year after the second offering of convertible notes. Perhaps I am foolish but I still believe in the stock as a long term investment.