By now you all know that I have issued several alerts on Sirius XM's recent rise from a low of .95, through the bullish catapult, and the resulting high pole formation to its $1.44 multi-year high. These alerts were first issued by me when I spotted an anomalous bullish pattern developing. Through the first four stages of the anomaly, Sirius XM shares reacted exactly as they had previously. As of Wednesday, the chart indicated a high pole formation, and in an alert I issued Wednesday night, I warned against a potential drop.
As you can see by Thursday's chart, the pullback did in fact occur. The analyst downgrades I had feared would come based on valuation concerns, have begun, with Murray Arenson of BGB forced into a downgrade based on upside potential requirements of his firm. David Bank of RBC continues to mock Sirius XM's share price as overvalued, on any media outlet that will give him voice, yet has fallen short thus far of issuing an outright sell rating on Sirius XM, which is probably being put to paper as I write this.
Let me assume for a moment that everyone executed the trades perfectly and banked many thousands of dollars on this run. Congratulations! The question before us then is, what happens next? It was at this point following the last anomaly that SIRI shares began to slide. That does not mean that the same will hold true this time, although it might. Let me explain:
Take a look at this chart. There were telltale signs the last time that demand had broken down and that supply was gaining strength. It began with a lower top as indicated by the red marks, and lower bottoms as indicated by the orange marks. The stock failed to break a double top at $1.14 after topping at $1.19, and continued to create another lower bottom. At that point, the bottom fell out and SIRI shares retreated even further:
If investors at that time had used a three point reversal method to time their buys and sells, they would have cashed out between $1.11 and $1.14. Investors who held rode the stock down to .81. It is for this reason that I am recommending using the three point reversal method now.
The three point reversal method does not just apply to the downside. It applies to the upside as well. Ideally, todays red column of O's found a bottom at $1.34, which should establish support, and the next line of X's will create a top. That top is the key to the supply/demand scenario. If the top breaks out to $1.45 it would be a signal that the bulls are still in control. A higher bottom following that would offer further support. A lower bottom and lower tops should signal investors to hedge against potential losses.
Todays trading brought with it some very good support at $1.38. There remains every chance that SIRI shares will continue higher, especially with news of Howard Stern's future on the horizon.Similarly, there remains every chance that investors will take their gains and flee.
As always, I will be available on the Satwavespro forum and chat room as things develop to update members on key points.
Disclosure: Long SIRI