Closing at yet another 52 week high is something longtime investors in SiriusXM (NASDAQ:SIRI) would love to get used to.  The company did it yet again today, and continues to show strength in uncharted waters.  The question on everyone's mind is how long this can continue.  Runs like this are always impressive, and the fact that this is happening in the dog days of summer is great news!

Yesterday's report spelled out several caution flags.  These flags are not sell signals, but instead a prudent approach to watch things closely.  This is particularly true for the traders and those that like to play the long and short situation.  For the "buy and hold" crowd these cautions may not carry much meaning, but they should and I will explain why.  When an equity starts to hit highs, it becomes a target for those looking to short the stock.  Shorts are simply looking for a sign of weakness in order to make their move.  It is not necessarily a bet against the company.  Oft times it is simply a bet that the stock will correct and in doing so provide a great opportunity to make money.

Another point that I brought up yesterday was the RSI indicator.  The RSI examines when an equity is either overbought or oversold.  An RSI of 50 is neutral, 30 is oversold, and 70 is overbought.  SiriusXM now sits with an RSI of almost 78 and is climbing, and has been in overbought territory for days now.  This is one of my caution flags.  Again, it does not mean sell, it simply means that we need to pay attention.

Volume

Yesterday I had indicated that a key volume level for SiriusXM in identifying a possible top was the 20 day average volume. Yesterday that average was 76 million shares.  If the uptrend was going to continue today then we wanted to see it happen on above average volume on the 200 day and in looking for a possible reversal, above the 20 day average.  Once again, SiriusXM pumped up the volume, and delivered nearly 86 million shares traded!

Here is the situation we are in.  The big volume days are beginning to get absorbed into the mix.  The 300 million share day is out of the 5 day range, but in the 13, 20, and 200.  For the moment, we see SiriusXM delivering good volume that remains above the 20 day average.  This is impressive because that is not an easy task when you have some massive volume trading days in the equation.

If this equity can keep volume at current levels until the 300 million share trading day passes beyond 20 trading days, it will be a very good signal and very bullish in my opinion.  Thus we have the caution of a day where volume drops below the 20 day average volume presenting risk, and a reward if it can stay above it until after the 300 million share day fades beyond the 20 day average.  If SiriusXM can keep above that 20 day average it would mean very strong support is being built at current levels.

There will be some that say this is riding a fence.  In one sense it is, but it is not me riding the fence, but rather the equity.  That is what analysis is all about.  In my opinion it will be difficult for SIRI to maintain this type of volume and that is the precise reason I would be cautiously watching these types of signals.

Support & Resistance

I had some comments about this as well as emails.  The essential theme of these was seeking a resistance point above.  The answer is that there really isn't one.  Yes, I guess I could put up $2.75, or even $3.00 and assign an opinion of how strong that level will be, but that would make the data dependent on my opinion.  One of the points of technical analysis is to form an opinion on the data that is out there, not create the data to suit an opinion.

Today we got one new data point.  That level is $2.60.  SiriusXM tested this level several times during the day, but did not break it.  While it is only a penny above the close, it does represent new data that can now be considered.  I am not calling $2.60 support or resistance at this point, but simply noting that this is the battleground that has been established.

The key would seem to be this.  What happens at $2.60 and whether or not it can continue an upward trend or settles down a bit.  $2.56 showed a little support in the afternoon, but still is not very strong.  We are starting to see a wide gap between strong support and current prices.  Once again, be cautious of this.  The next level of support with moderate strength is $2.35.

Exponential Moving Averages (EMA's)

These remain in bullish mode with the gaps between each level getting bigger. Plenty of wiggle room here, but the key level is trading above the 5 day average which now sits at $2.52.  Of note is that the 20 day average sits just below the strong support at $2.35.

 Valuation

The valuation is getting even more interesting as yet again the company has not sold off when the valuation is above 20.  This is another caution flag for me.  While SiriusXM has certainly tested higher valuations in the past, 20 has oft been a tripping point that brought on a reversal.  That is a historic factor that can not be dismissed lightly and is a reason to pay close attention in the coming days.  As it sits right now the multiple applied to SiriusXM is approaching 21.

Summary

We still have an uptrend going and that is good.  Ignoring the trend is a fools errand.  We do have several caution flags which are simply telling us to pay attention.  Even if there was a low volume day, the overall trend would not necessarily be broken.  I do like to see confirmation happen before passing judgment.  Watch for volume above 78 million.  Watch for what transpires at $2.60, and watch to see if $2.56 then $2.50 can hold.  As always, Happy Trading.