Sirius XM (SIRI) investors should be aware of what the Russell inclusion means historically. Although there will likely be a rise in the PPS leading up to inclusion, the best effect of forced institutional buying is that it is similar in nature to a stock buyback program, as up to 400 million shares of Sirius XM Radio will be removed from the supply and demand equation.
On June 11, 2010, Russell Investments will publish its preliminary list of equities to be added to its indexes. The Russell trade is simply a trade in which smart traders know that a large scale institutional purchase will be made on June 25, 2010. For those intelligent enough to know that Sirius XM will be on the list of additions, there is an opportunity to buy in at the currently suppressed price, which stands well below Sirius XM’s recent 52 week high of 1.25. Still, others will wait until the list of additions is confirmed and buy into Sirius XM based on the published list.
It’s important to understand that many of the traders and hedge fund managers will use the actual reconstitution spike as an exit point, and the increased demand will be met with the increased supply from the traders selling into the rally.
Offering further strength is the likelihood that any current short sellers will be looking to exit their short position, as Sirius XM is likely to appreciate substantially through the month of June. Quite frankly, $1.50 -2.00 by the reconstitution date is very likely, yet the potential for a pullback following June 25 is just as likely. With that said, investors may want to take advantage of these price moves to either lower their cost basis or add to their positions.
Investors will want to watch the trading patterns closely, as the cycle may be set to repeat later this year should Sirius XM be added to the NASDAQ 100.
|June 11||Preliminary additions and deletions to the Russell Global Index, Russell 3000® and Russell Microcap® published after 3:00 p.m. PST|
|June 18||Updates to the list of additions and deletions|
|June 25||Updates to the list of additions and deletions |
Reconstitution final after the close of the U.S. markets
|June 28||Final membership lists posted for the Russell Global, Russell 3000, Russell 1000®, Russell 2000®, Russell Midcap® and Russell Microcap Indexes|
Disclosure: LONG SIRI