Little Apple's  Instablog

Today the 50 day simple moving average SMA of Sirius XM (SIRI) stock crossed over the 200 day SMA to form a "golden cross". As far as technical signals are concerned, this is considered to be the best time to buy a stock. As Brandon Wendell explains, this is an extremely bullish signal for a stock:

The "golden cross," or action of the 50-period moving average crossing over its 200-period counterpart, is a valuable odds enhancer for identifying and executing high-probability trades in all markets.

Many traders often ask me what the "golden cross" is. The actual definition of a golden cross is when a shorter moving average finally crosses a longer one, thus confirming a trend is intact. The definition that most traders are concerned with is the one where institutions and funds may start to take action, and therefore, start to drive a stock further into the trend with volume.

Consider this ten year history of Sirius XM, which shows several "golden crosses" over the last decade:

There is a "golden cross" in 2003, which precedes a $3 gain in share price over the next year. Then a very dramatic golden crossover at the end of 2004 which sent the stock skyrocketing from $2 a share to $9 almost overnight. In 2005 another crossover was followed by a $3 a share gain. A small, short lived cross at the end of 2007 created a $1 per share gain. This was followed by the most recent one in 2009 which lasted for two years and produced a $2 per share gain. So for the last 10 years Sirius has produced substantial gains every time the 50 Day SMA has crossed above the 200 Day SMA. So how much will the gain be this time? The answer to that question lies in the 2011 earnings results and the 2012 guidance to be reported on Thursday morning on the Sirius XM conference call.

Some analysts also look at the 50 day exponential moving average or EMA compared with the 200 day EMA. The "golden crossover" of the EMA is an indicator that the SMA is about to cross in the near future. This can be used by investors to spot a bullish trend. Then when the SMA produces a crossover it confirms the trend. As you can see on the chart above the EMA "golden cross" has always predicted the actual SMA cross. Last month the Sirius 50 day EMA crossed over the 200 day EMA on January 4, 2012. Sirius XM shot up 11% to close at $2.04 after the crossover. And it climbed all the way up to $2.19 on January 17 just 25 cents from the yearly high of $2.44. Again it did accurately predict the actual SMA "golden cross" which occurred today.

Disclosure: I am long SIRI.

I think it first started when I was a store manager 40 years ago.  For some reason, I developed really good instincts about making a profit and investing. The company that I was with  had really severe shrinkage problems in the District where I worked.  They gave me the worst store in the area to manage and try to turn around. I eventually weeded out the bad guys and turned it around in a couple months. Then they hired me to train store managers to get the same results in other stores.  That is when I first started investing.  I started buying Exxon stock in my Profit Sharing account.  I was a total novice and began to teach myself about investing.

Then I was promoted to District Auditor.  For whatever reason some of the stores continued to show large losses.  Long story short through a series of events I uncovered a group of upper level managers that were stealing from the company. At the same time, I also made a killing in my portfolio.  Throughout the years my instincts for investing and my gut instinct for knowing who to trust has served me well. And that is why when I began investigating and investing in Sirius XM (SIRI) red flags started going up.

I was looking for different stocks that were under $5.  Why? Because you are much more likely to make a higher return.  For example Sirius XM will go 10 times higher before a more expensive stock will.  In other words Sirius will hit $18 a share before Apple (Appl) hits $4000. Of course there is risk.  There is risk in any investment. But the promise of a big return outweighs the risk.  I am not picking on Apple, it just shows such a dramatic example.  Sirius will also hit $18 before Exxon (XOM) hits $800.

The other thing that I always look at is institutional ownership.  They will make mistakes like everyone else, but not as many.  If there are a lot of funds buying a stock it will respond to the uptick and the volume and go higher. According to Daily Finance 1.61 Billion shares or 42.9 percent of Sirius XM stock is owned by Institutions.  This is up 70 million shares over the last 4 months.

I trade stocks daily, and read as much as I can about different companies always looking for opportunities. It is very hard to find articles about companies that are trading under $5 a share.  Most publications won't even print anything unless it is earth shattering news, such as when Howard Stern was picked to be a judge on the hit show "America's Got Talent". But as an investor of one of these stocks you continue to look anyway.  Then I found several articles each day written by members of Seeking Alpha.  But I kept seeing a lot of articles that were very negative about Sirius. 

One article in particular was based entirely on false news.  Usually I am way to busy to research someone else's research, but for whatever reason this time I did. This was the 3rd negative article by this writer and I noticed that he was Long on Pandora (P) - Red Flags everywhere.  The October 14  article started out:

When I had heard that Sirius XM (SIRI) officially released the first offering in its 2.0 line to retail, I searched for stories about the development. At first I was surprised. All I could find were random articles from loyalist longs over-hyping what's known as Sirius XM Lynx. After retrieving the details, however, it's hardly shocking that the media took a pass on the "news."

The release of "Lynx" sits somewhere south of being a non-event.

I found the picture of the Lynx that he saw from a picture showing the Best Buy logo.  I then went to the Best Buy website and could not find a 2.0 Sirius Radio for sale anywhere. I investigated further and found out it was not true. The Lynx had not been released.  All of us make mistakes, this is human.  But when numerous people commented that the article was not based on facts, this guy ignored their comments. There was no apology from him or Seeking Alpha, and no corrections that I ever saw.  The entire article was based on complete misinformation.

Then 2 weeks later, I saw this in an article by this same SA writer:

Because it deals almost solely in options, I like to take this opportunity most Fridays to update the $10,000 portfolio's positions at week's end. It also makes sense to review things because these trades represent my relatively long-term sentiment on each company. As such, it might not be wise to look at Friday's performance and enter a trade on Monday.

Option	Quantity	Entry Price	Midpoint Price, Friday's Close	Profit/Loss
Apple (AAPL) April 2012 $450 call	1	$19.18	$17.93	- $125
Amazon.com (AMZN) April 2012 $220 call	1	$30.00	$22.60	- $740
Research in Motion (RIMM) March 2012 $20 put	30	$2.70	$2.85	+ $450
Sirius XM (SIRI) March 2012 $3 put	25	$1.58	$1.20	- $950
PowerShares QQQ ETF Trust (QQQ) March 2012 $50 call	1	$6.68	$10.00	+ $332
Netflix (NFLX) June 2012 $50 put	8	$4.50	$3.90	- $480
Pandora (P) June 2012 $15 call	9	$2.55	$2.40	- $135
TOTAL P/L				- $1,648

That puts the value of the $10,000 portfolio at $21,883. Still a double by a somewhat comfortable margin.

Again, I do not have the time or the means to find every single author's portfolio and go through it to check that they are disclosing all their positions concerning a stock that they are writing about. But here it is right in front of me. A position in Sirius by the writer - a PUT.  He did disclose the Pandora Long that is in the portfolio, but not the Sirius position. Is this the reason that he is writing the negative articles about Sirius? Trying to pull the stock down to make his portfolio look better?

At first I gave him the benefit of the doubt, and thought he took the position after he wrote the negative article about Lynx.  But no, the articles have continued. All of them cutting down the stock and anyone that would invest in it. On a couple of occasions, I have made comments on his articles trying to correct some of the information he has written about, and my comments were removed.

At any rate, the truth about the Lynx is that it really was released this past Thursday night just as promised. On the last Sirius XM  conference call, they announced that the eagerly awaited  Android- based LYNX would be available by the end of the year. And just as promised it came out right under the wire. I won't bore you with the bells and whistles it has, there are pictures and articles all over the internet and on all the social sites.

And if you wanted a new Lynx radio it is already sold out.  Thursday night there were rumors that Crutchfield.com had already sold out within an hour.  I called them and although they would not make an official statement, they told me that thousands and thousands of people had pre-ordered it, and the shipment did not even cover all the pre-orders.  That night I also checked the Sirius website, and it appeared that they still had some left.  However I just checked it today and they are also completely sold out.  I called to verify it, and they did confirm it, but could not tell me how many have been sold or when they will get more in. 

Will this news finally push the price of Sirius XM over $2 a share?  My first question to myself when I saw what the Lynx could do was: Will they be able to keep up with the demand?  And now I see that this might be a red flag.  A really good red flag!!



 

 

Disclosure: I am long SIRI.

Is SiriusXM Radio (SIRI) ready to pop?  Many longtime Sirius investors can't wait. There have been a lot of positive financial reports, and the future looks bright for the company. However there are still some Sirius Bears ready to twist any type of technical signal into a negative.
 
The Death Cross

According to an article this week, written by Stock Croc, the 50 Day MA is about to cross the 200 Day MA. 

The 200-day and 50-day moving averages are indicating a potential death cross, which worries technical analysts.

It is true the lines appear ready to cross. The only problem is that he is predicting a death cross, which is impossible at this time. As Simon Maierhofer pointed out earlier this summer:

It’s official, on August 11, the S&P’s 50-day simple moving average (SMA) sliced below the 200-day SMA. This condition is dramatically called the death cross.

The death cross has foreshadowed some remarkable market meltdowns (-46% in 2000 and -55% in 2007) and shouldn’t be ignored.

The actual death cross for SiriusXM already occurred 2 months ago in October.  After the actual cross, the 50 Day MA has remained below the 200 Day MA.  Thus, if the lines do cross again, the 50 Day MA could only rise above the long term line, since it is already below it. If this cross does occur it is actually a Golden Cross which is a strong buy signal.


Above is an example of the SiriusXM death cross in October which usually occurs after a drop in price begins. As you can see the 50 Day MA still remains below the  200 Day line.

The Golden Cross

According to Kapitall, the definition of a Golden Cross is:

..........stocks exhibiting the technical indicator “golden cross,” in which a stock’s 50-day moving average crosses above its 200-day moving average.

Consider this ten year history of SiriusXM, which includes both types of crosses:

There is a Golden Cross in 2003, which precedes a $3 gain in share price over the next year. Then a very dramatic Golden crossover in  2004 which sends the stock skyrocketing from $2 a share to $9. A small, short lived cross at the end of  2007 created a $1 per share gain. This was followed by the most recent one in 2009 which lasted for two years and produced a $2 per share gain. 

So for the last 10 years Sirius has produced substantial gains every time the 50 Day MA has crossed above the 200 Day MA.  So are they going to cross, and if so bring on a dramatic incline in price? This is why we study History, because it usually repeats itself.



Disclosure: I am long SIRI.