The ashes of a massive forest fire sprout trees that are stronger and more prosperous. While it may be frustrating for Sirius XM (NASDAQ:SIRI) investors to see the stock continue a downward trend, it also presents a wonderful opportunity for those who believe in the company.
From a technical standpoint Sirius XM is exhibiting very bearish behavior. Rather than express anger, invent some conspiracy theory, or scream about the shorts, investors who believe in the overall prospects of the company should look at this as an opportunity. While everyone else is spending hours trying to figure out which market maker is manipulating the stock down today, savvy investors seek out the tid-bits of information that help them see where the bottom might be and increase their odds of being on the right side of the trade.
As readers may already know, I am a fan of watching the volume on a stock, looking at the Exponential Moving Averages, and using support and resistance levels. While I do not base all of my trading on technical analysis, I do use it as a reference point that weighs in on my decisions.
With Sirius XM the volume has been paltry. To me this is an indication that the equity is essentially adrift without very much impetus to move substantially in either direction. Low volume allows small trends to develop, and if left unchecked, could cross critical technical points that can create the next wave of action.
Exponential Moving Averages have remained in the same bearish stance ever since I called the trip down to $1.83 a few weeks ago. While the bearish sentiment has remained, some of the data points have changed, and it is time to revisit the possibilities surrounding Sirius XM. Before getting into the EMA chart let's look at support and resistance.
SUPPORT AND RESISTANCE
$2.05 - Very Strong Resistance
$1.98 - Very Strong Resistance
$1.86 - Moderate Resistance
$1.79 - Moderate Support
$1.70 - Moderate Support
$1.63 - Very Strong Support
As you can see, Sirius XM broke through $1.86 and remained above $1.79. While this equity could trend either way from here, the trend has been to the downside. Should Sirius XM break through $1.79, it is pretty much a given, in my opinion, that $1.70 will be tested. Shy of any compelling news to drive the stock, the next stop at $1.63 becomes more and more likely.
Yes, some will consider this "bad news." There will also be some who will label me as a "bear." Another smaller segment will accuse me of being "short" the stock or say that I am a "long in disguise." It is from these people and those like them that savvy investors make money. Instead of looking at this as an opportunity to bolster their positions they would rather look for some invisible monster that plays havoc on an equity they are invested in.
What I see developing is a wonderful situation for anyone who believes in the fundamental side of this company. What I see is a window of opportunity to grab up additional shares on the cheap by looking at this stock with analytical glasses instead of those rose colored ones.
(click to enlarge)
Looking at the EMA chart we can see that the moving averages are all beginning to converge. When this happens it means that the stock has started to find a level from which a reversal can happen. Also note that the 50 day EMA ($2.03) is now below a key resistance point ($2.05), the 20 day EMA ($1.92) is below another key resistance point at ($1.98), and the 13 day EMA ($1.89) is below a new key resistance point at ($1.86). What I would like to see as these EMA's converge is each EMA to approach the next level down on low volume. To me this would be the perfect recipe for a reversal.
What this means is that we have a strong potential to test $1.70. That should present a wonderful entry point for those who like this company in the longer term. If, in theory, you liked Sirius XM at $2.15, why would you not like it at between $1.60 and $1.70 when the fundamental outlook of the company has not changed?
The moral here is to stop looking for excuses as to why an equity is trending down, and instead look for the buying opportunity in the move. We are now approaching the carefree summer months of minimal trading. Take advantage of whatever you can.
One wild card in this whole analysis is news surrounding Liberty Media (NASDAQ:LMCA). Liberty is a few short weeks away from closing on its forward purchase contract of 302 million shares, and we could also see an FCC decision on the Liberty appeal for de facto control of Sirius XM. Events surrounding Liberty Media could be substantial enough to upset the technical applecart.
