Sirius Sell-Off: The Russell Index Effect

As you may have noticed, Sirius (SIRI) took a nose dive in the last 10 minutes of trading Friday, closing down over 20%. The 10 day average volume for Sirius is 67.5 million shares, however on Friday the stock traded over 432 million shares (including after hours).

With roughly 100 million shares traded at 3 PM, Sirius volume exploded in the final hour, especially in the final 10 minutes and into after hours. This is most likely due to Sirius being deleted from the Russell Index.

As a recent article by Mark Hulbert on MarketWatch states about the Russell Reconstitution:

So much money is invested in index mutual funds that adding or deleting a stock from a widely followed index has a huge impact on its price.

A stock that is added to an index, for example, will automatically be purchased by all funds benchmarked to that index, propelling its stock higher. Conversely, a stock that is deleted will automatically be sold, forcing its price downward.

Note carefully, however, that these big price swings have nothing to do with the stocks' fundamentals. So issues that have been added to an index will presumably become overvalued relative to stocks that have been deleted.

In after hours, Sirius traded as high as 48 cents but finished trade up 6 cents (16.67%) to 42 cents. The current bid ask spread is .415/.42. Sirius had a nice move up Thursday on the news of a strong debt sale, so it will be interesting to see if Sirius can hold this after hours gain into Monday. I am lucky I didn't have any stop loss orders in for Sirius as I would have sold at the wrong time.

To get an entire list of stocks added and deleted from the Russell Index on June 26, 2009, click here.

Disclosure: Long SIRI

Comments

[SouthernBea...:]

Good Article Marco, this gives a good explanation of what happened at Friday's closing. It is rather ironic that Sirus has started getting their Financial House in order and now they are Russell delisted. It was also interesting to see the actual list.

Jun 28 09:00 AM

[Neal Barkett:]

It's amazing to see over 50% flux in 1 days trading when no real news concerning the companies fundamentals came into play.

Jun 28 10:11 AM

[patito:]

Technically speaking I think that SIRIUS has a target around 1.50 area.

But, the trigger for a big move was holding over 0.465. Thats why 4 minutes before the close us it was at 0.46, short sellers pushed the stock down, knowing where were the stop loss located.

If SIRIUS manage to close over 0.465, next target would be at 0.575. Now it has Near Medium and Long Term Momentum converging to the upside.

So unless short sellers use the last minutes of trading...during the session every sell on the stock is a big opportunity for adding positions.

I agree that 0.35 is a BIG one. But, it was last week when the Near Term was pushing to the downside, along with the market.

But Nasdaq Momentum is heading higher now, as well as SIRIUS (SIRI), so...It would be better to think that 0.465 is more likely to see than 0.35.

If the week starts with lower US DOLLAR INDEX below 80, and GOLD over 940...the markets have big potential to move higher and push over the highs of this year.

Nothing is casual in the markets, and the last minutes of trade in (SIRI) are no exception. SIRIUS chart is one of the best one nowadays. If you analize it I wouldn't hesitate to buy (SIRI), is one of the best. And has a huge volume everyday.

Jun 28 07:40 PM

[261133:]

You really think delisting from the lowest Index means nothing? You really believe a sell-off of 400 mil. shares isn't panicking ? The stock lost 30 % in less than a minute, for crying out loud. Who is going to buy that stock now ?

Jun 28 07:45 PM

[holmesnmanny:]

People that know that even with all of the bad news over the last year, the stock is up, up, and up.

Especially given all the bad news in the auto market and the fact that they are barely posting a loss, you gotta figure this stock can only go up from here, and, as a matter of percentage, I can't really see people not buying into Sirius at this point.

Especially given the new and improved credit outlook.


On Jun 28 07:45 PM 261133 wrote:

> You really think delisting from the lowest Index means nothing? You
> really believe a sell-off of 400 mil. shares isn't panicking ? The
> stock lost 30 % in less than a minute, for crying out loud. Who is
> going to buy that stock now ?

Jun 29 01:41 AM

[holmesnmanny:]

And just because I feel like pointing out given that you obviously don't know anything about stock volumes, that 400 million volume includes both selling and buying volume.

Reread the article at the top to find out why the volume was so high.

Jun 29 01:43 AM