In my most recent article, I received a comment from Seeking Alpha user amp61 which I felt could best be fully addressed with an article, rather than a simple comment. Amp61 is a Sirius XM (SIRI) investor I have had the pleasure of speaking with on a few occasions and he posted the following question to my article:
Well SF...how much more patience are we investors to have with this stock this year? As an investment to hold this stock has certainly sucked since the 2nd week of the year. If you happened to be a good trader you have been able to make some money between 3.23 and 3.00 a couple of times or maybe three. What the heck is up with this stock? The stock market has been doing well for a couple months but has not helped this stock to move on up as of yet.
My answer and subsequent dialogue may be found in the comments section of the article linked above.
So why should investors continue to exhibit patience? Why not just sell out at $3.06 and be done with a stock which may seem stuck in the mud? Because I don't think current pricing is anything to be concerned about for the long-term investor. I actually think current pricing is buy territory, and I will be buying more in my personal account on Wednesday, March 20th, assuming no fundamental "bad" news hits the street.
It all goes back to what I wrote earlier in the year. Sirius XM, I believe, is one of 2013's best investments out there for what I feel are relatively safe gains. With Sirius XM's $2 billion buyback set, and with auto sales posting gains for the year, I feel last year's performance should be expected this year as well. Year-over-year? Sirius XM is up some 35%. And 35% from current pricing places Sirius XM at $4.13. Not particularly far from my target of $4.25.
Investors need to understand, though, that despite a forward-looking price of $4.25, that pricing includes future company performance as well as assumptions that Sirius XM buys back a considerable portion of the float. In the meantime, it can be expected that the share price can, and will, fluctuate, find resistance levels, find support levels, and in general trade across a range as most stocks do. The fact that a buyback is in place does not mean the price will ramp up quickly, and the fact that the company is performing well does not mean that investors will not be willing to sell at pricing below $4.25, or even below $3.25.
That's just how things go.
So what can an investor do to keep their head on straight in the meantime besides a full understanding of the fundamentals of the company? Take a moment to study and understand the technical. Support and resistance levels can be made quite clear over time, and can be used to one's advantage in timing purchases, or sales.
Here's Sirius XM's chart from the past 15 months or so to illustrate what I am talking about.
Now, my line drawing skills may leave a bit to be desired but the general idea should be easy to gather here. Red lines are resistance, and green lines are support. You'll notice that when the stock hits these lines, it generally bounces. Red line? Stock bounces down. Green line? Stock bounces up. When and if the stock passes a red line, or resistance, it turns into a green support line as the stock did back in early August.
I can draw about 20 lines on this chart and make it very complex, with smaller trend channels and breakdowns and resistance levels, but that's not going to do anyone any favor. The above two lines are currently the most important for investors in Sirius XM to watch from a technical standpoint to be sure that everything remains on track. Investors should expect the share price to struggle with $3.25, and investors should expect the share price to find support near $3.06.
That means if you must sell your stock soon, you may wish to wait for the share price to bounce up to $3.25 again but understand that this is not a guarantee. And if you are looking to buy, and you have confidence in support, now is the time.
Also, realize that these lines are just that. Lines drawn by a guy sitting at a computer looking at a chart saying "hmm, that looks good!" The market can and will ignore these, eventually breaking resistance and support for various reasons.
I may find my purchase on Wednesday ends up being right before the stock makes a nosedive through support and I am okay with that, and willing to accept that risk. My fundamental view on the company is quite strong, and I believe any correction might even be healthy. When you consider I am a long-term investor in Sirius XM, why wouldn't I want lower pricing for my own purchases, as well as lower pricing for Sirius XM to buy back more shares with the $2 billion it plans to spend so far? Win win for me, as I fully expect company performance will even it all out later to the upside.
That said, I don't think the stock is due for a crash, but rather that it is due for at least another test of $3.25. I believe the green line above will continue to provide a rising level of support for the foreseeable future.
Additional disclosure: I am long SIRI January 2014 $2 calls.