Sirius XM: What Drove The Huge 7% Rise On Monday?

| About: Sirius XM (SIRI)

For those who follow Sirius XM (NASDAQ:SIRI), Monday July 2nd was quite the day. Starting out at $1.84, it seemed there was little resistance for the stock as it rapidly appreciated right up until the closing bell, closing the day out at $1.98 for a whopping 7% gain on higher than average volume of 67 million shares traded.

For those looking at technicals, this places the close in extremely bullish territory, above the 10, 20 and even 200 day moving averages, and directly on the 50 day moving average. The close was also significantly above the upper bollinger band.

This is all well and good, but it seems the question on most minds all day has been "why?" One would hope the question would be answered after the closing bell, but unless you believe that Jamie Foxx bringing his Sirius XM channel Foxxhole to Atlantic City over the July 4th holiday is some sort of massive catalyst, there's not a peep out there in SIRI-Land as to why the share price appreciated to such a great degree this afternoon.

So, as investors and would-be investors, which includes those sitting in cash such as myself, we must play a guessing game as to what is going on.

One thing is quite obvious. There was a considerable amount of buying today, and it was not brief. The entire day was dominated by large quantities of purchases from start to finish, which, to me, points to a large player with deep pockets emptying them of cash and filling them with Sirius XM shares on the open market. I'll simply cut to the chase here. In my mind, the only likely suspect is Liberty Media (LMCA). If you look over there against the saloon, John Malone is leaning against the wall, guns smoking, piece of straw in his mouth and a sun glinted half wink smiling out from under the brim of his tipped cowboy hat.

For my reasoning I fall back to my article from last week regarding my expectations that Liberty had entered into a second forward contract to acquire the necessary shares to move beyond a 50% stake and take de jure control of Sirius XM. For those who remember the first forward contract, immediately after it was filled Liberty bought additional shares in the open market to the tune of 60,350,000 shares. My thoughts? As I believed Liberty's second contract was due to fill soon, I would wager that Friday, June 29th completed the second contract, and Liberty has gone to the open market for the additional shares they need.

To expect Liberty to pay a premium over market price earlier on, as I stated in February, was folly. The game changes, though, when Liberty is down to needing only a hand full of shares to complete their move over 50%.

Consider when one forms a collection. At the beginning, it's easy to add pieces, and for relatively cheap money. But as you begin to complete that collection, and as you have less and less pieces to buy, you are likely willing to pay more for those last two items to complete your set.

The same works for Liberty's shares. If they have purchased and secured 700 million total shares, and only need (for example) 40 million more, buying those 40 million on the open market and driving the price up 10, or 20 cents is inconsequential. The cost and time wasted to initiate another forward contract likely outweighs the relatively small premium of a few million dollars to get what they need immediately. When you're talking in billions, a few million is like a few pennies to the dollar.

If this is indeed what is happening, it will be made clear through a form 4 filing with the SEC within a few days, and investors should keep an eye out for this.

The question then becomes, if Liberty is the cause of the run up, and if Liberty is buying up to a certain point, what does this mean for the share price? That one's tricky, and it's too early to tell if the share price will continue the bull run, or roll over and drop like a rock. The bad, in this case, is that if Liberty is the buyer here, who is left to buy after it is done? If buying pressure is all Liberty, and if buying pressure dries up, I have serious concerns that this may simply be a blip on the radar, and the share price may tumble in short order afterwards. Any return to a downtrend will now have fuel on the way down, as those who bought and chased today will add to selling pressure if they have weak hands.

I'm still running with caution. I'm still in cash. I'm waiting on news. I will say, even sitting in cash today was very exciting, and I am absolutely thrilled for all those long Sirius XM today. It seems the fireworks have come a bit earlier than the 4th this year for Sirius XM investors.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SIRI, LMCA over the next 72 hours.

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