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A Sirius Situation

Certain stocks have patterns. It may take time to realize it but the key to realize a pattern is simply to realize when a stock is oversold or overbought, during times of panic or speculation. The most obvious stock in regards to this pattern is the famously volatile SiriusXM (NASDAQ:SIRI).

The problem with SIRI is that it is a great company and that there really is no price limit to where its stock should be at. Sound strange? How could that be negative?

Well it actually is quite simply. SIRI is known for its fans/investors who long realized what an earnings machine SIRI could become as its growth potential is large. Only 20 million subscribers with an over 300 million population in the US, an over 40% adoption rate in new vehicle purchases, what is not to like?

Yet the bane of such growth companies is how to price the stock. What is it really worth?

While the fans simply rant that it can go to $2, $4, and $6, you must keep in mind that the numbers they were spouting at 86 cents (when I started following SIRI) were $1 and $1.5 and they have been continuously rising with the stock. In other words these “targets” have no real meaning as they are spouted by crazy fans and not by “intelligent” analysis.

The problem is that “intelligent” analysis is not really intelligent. Analysts come up with price targets based on current price and market sentiment (which is largely influence by SIRI fans). Therefore you will have speculators start buying when they think a rally is going to happen, and sell/short when they think it is overextended. A recent case in point was the last rally which occurred from about $1.6 to 1.88, before plummeting to a low of 1.62 among panic. This past week the bargain hunters set it, me included, and it jumped back to 1.84.  It seems that this small/quick rally is now over as it fell back to 1.76, but it is still in the mid-zone so it may rise back to 180s or fall to 160s very easily.

It seems right now that this is the current range, and it may be smart to buy and sell at those extremes at this time.