SiriusXM (NASDAQ:SIRI) is getting exciting again. After recent runs on huge volume it was revealed that Liberty Media has once again increased its stake in the satellite radio provider. While this does not bring final resolution to the Liberty Media situation as yet, it does serve to give us an understanding of some of the things that have driven SiriusXM up lately. Does the most recent Liberty news propel this to massive highs? The answer is NO, and to expect that would have been a fools chase. Every investor already knows the outcome of the Liberty situation, and until Liberty gets control, purchases like these are simply crumbs of bread and not a driver.
Before getting into my usual technical update I am going to introduce yet another factor. The Relative Strength Index or RSI. RSI is a technical momentum indicator that compares the magnitude of recent gains to that of recent recent losses. The concept is to determine overbought and oversold conditions. Overbought means that the equity is high on the scale of buyers and should see a correction. Oversold is the opposite. The formula is RSI = 100 - 100/(1 + RS*) with RS being the average of x days' up closes / average of x days' down closes.
I typically do not look at RSI every day. I find it to be a valuable tool when big shifts in an equity happen in either an up or down direction. That is what has happened with SiriusXM of late. When looking at the RSI, 50 is considered to be neutral. An RSI would typicaly be in the neighborhood of 50 when a stock is consolidating and trading in a range. An RSI of 30 would indicate an oversold, while 70 would be overbought. Currently SiriusXM has an RSI of 76, and has been over 70 for several days now. This means that from an RSI technical standpoint SIRI is overbought and could be due to correct. This is something to bear in mind when looking at other technical indicators.
SiriusXM is still exhibiting stronger than average volume, which is quite impressive given that it would appear Liberty Media could be pausing from buying activities. An interesting dynamic is that Liberty could still be making open market purchases to get to 49.9% and then use the forward contract that is not due to settle until October 11th to take it over the top upon FCC approval. There are many moving parts here, so speculation will happen. As long as speculation is grounded in some form of reality, it is healthy.
What we are watching for, on the caution side, is for volume to begin to evaporate. I am more and more cautious now because SiriusXM is now several days into an overbought situation when looking at the RSI. This does not mean an action point has been reached, but it is good to know the more cautious side for if and when those signals start to develop. The earlier you can see a reversal in a trend the more successful you can be as a trader. The average we I use as a baseline is the 200 day volume average. As you can see, SiriusXM is below the 5 day and 13 day averages but slightly above the 20. In my opinion if SiriusXM crosses below the 20 day average in volume it will be a signal of a shifting trend. Watch for this as the days progress. Another factor in volume could be that Mel Karmazin should be selling between 10 million and 20 million shares. If a portion of those sales were today, than we could be looking at volume already trending down on a normalized basis.
Support & Resistance
Support and resistance have not changed much since my last update. One item to note is that the high of the day today was right at the $2.57 I established as a resistance point. For the moment I see this being the upside battleground. The downside battleground will be $2.45 at the moment, with $2.35 being a possible consolidation point.
The keys here are trying to hold the line at $2.50. Despite closing at yet another 52 week high, the equity did drop as low as $2.48 for a good portion of the day. Once again I bring up the possibility of the Mel Karmazin sales. If his sales happened today, it could be what served to take the equity down to a level below $2.50.
What we want to see is SiriusXM hold the $2.50 line. I hate to bring options expiration into this, but that happens this Friday. The action on Thursday should be quite telling.
Exponential Moving Averages (EMA's)
The EMA's still remain very bullish. The gaps between each level are also continuing to increase. This is now getting into territory where things like the RSI, volume, and these big gaps put little caution flags up. Essentially traders will want to ride the trend as long as we can and find the optimal point to hop off. When that happens, it can carry a big impact. Traders are not hoping off now, so just keep a watchful eye.
The goal here is to remain above $2.49. That also ties into the support level outlined above. Simply stated things remain bullish, but we want to pay close attention.
We are in interesting valuation territory. Excluding the NOL impacts, valuation sits at 20.46, essentially the top side of the multiple scale that this equity has difficulty maintaining. If we consider the NOL's, SiriusXM has now crossed 17, the highest level since the company reported its quarterly results.
As you might expect, I am going to once again apply the caution flag. It may seem that I am being bearish or overly cautious, but I keep my emotions out of this. Attaching emotion is a dangerous game. When we attach emotion we tend to see things much differently. An emotional trader is the trader seeing the run and the news and thinking the equity will go to $3.00 in the near term. That is a trader that will then try to defend that assumption and oft times it becomes the trader that misses the top.
Whenever an equity gets into unknown territory, and that is exactly where we are, some caution is warranted. That is not being skidish, bearish, or stupid. That is being prudent and treating your investment and the market with a healthy respect. Caution flags do not mean to sell and walk away. They simply mean to PAY ATTENTION to what is happening, not what you want to happen