Sirius XM investors will need to check their emotions right now. Although today's nearly 20% rise on Sirius XM common stock's price per share is welcomed by all, there are dangers here that need to be addressed.
From a technical standpoint, Sirius XM is a screaming buy. At this point, every stock technician both on and off off Wall Street knows this.
Which leads me to question the reasons behind such a move at a time of such unknowns, even though there are certainly factors at play that make a strong argument for Sirius XM going forward.
Auto sales are on the rise; Unemployment seems to be falling; The market in general seems to be fully in recovery mode. ATT reported that XM's Smartphone application was its fourth most downloaded application, which bodes well for the upcoming iPhone version from Sirius XM. There is even talk of a possible suitor in the way of DTV or DISH.
Sirius XM reports earnings this Thursday and Wall Street analysts have lowered the expectation bar so low, that a slug could jump over it. All of this makes a strong case as to why investors would suddenly be buying shares of Sirius XM. As my readers know by now, I am always interested in the opposing sentiment. As a shareholder of Sirius XM it is sometimes difficult to keep my own emotions in check. As a journalist, it is a moral imperative.
Many times a company's stock will rise as it's earnings release date draws near. Short covering can occur prior to the company's announcement as short sellers loosen their positions, just in case of an earnings surprise; always with the knowledge that they can re-short the stock following a steep rise if the call is good. In this way, they hedge their risk and are ready to drive down a stock immediately if the results are ominous.
What I saw in today's trading also alarmed me. Although there seemed to be a lot of buying, very little of it was displayed on Level 2 or NASDAQ's bookviewer. In my opinion, the stock price was "taken up" to entice new buyers and new money into the equity. I have seen this before with low priced stocks. It is a set-up in which people are lured into the stock, only to have it sell off days later.
With this in mind, it is very possible that Sirius XM will report a good quarter, provide guidance or news that benefits shareholders and gives rise to its price per share. It is also very possible, that it could be short lived. Investors should not be chasing the stock. Bet's should have been placed already. Now is not the time to be controlled by greed and fear.
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Position: Long SIRI