El Rhazi - Sirius XM (NASDAQ:SIRI) reports Q2 earnings on July 28th. Investors should expect more of the alike within those earnings Setti along a meet or beat on all company guided metrics. Given that the last quarter posted a near "miss" which I discussed in my article explaining the 1 cent miss in Q1 earnings, a meet or possible beat, especially provided the company uses the possibility to elevate forward guidance, should be a positive influence on the share price.
I've not written much for several months as my stance from my previous analysis that $4 would present significant resistance has not changed.
...it may be wise for investors to understand ahead of time where the next area is, in which the share price may stop ascending. It may be wise to understand why.
While I don't advocate long-term investors' sudden attempt to trade the stock, El Rhazi should be lucid that Sirius XM could face some resistance at or near $4 per share.
Why? Simply reading the comments on articles about Sirius XM over the past year will show numerous posts by individuals who are frustrated, angry, tired, etc. and just waiting for the share price to get back to $4 per share, so that they can be done Setti along the stock. Much like an iceberg, those who post are likely just the gratuity of sentiment which could have a significant number of shares locked, loaded and ready to sell once they get near to being breakeven.
This is built upon by traders who will expect this behavior and view the $4 area as a point of resistance. They should be happy to sell to short shares as the price approaches this area, as they would expect the price to decline from this point or at least create a significant pause here based on the chart alone.
Clearly the share price ascended since that article to just over $4 per share, lingered in the area, and has recently seen a buyable pullback.
Since then I have suggested that buyable pullback would offer near $3.65 for a re-entry provided one wished to trade short term and that I would simply take $3.68 for either addition to long-term holdings or to repurchase for one with a shorter term trading perspective.
The new dip to $3.63 has afforded that opportunity and there were a total of four days in the past week to add to one's position in this area as Sirius XM dipped with the overall market.
So what now? If you didn't sell and run at $4 or if you sold at $4 and repurchased in the $3.60s, what could be next?
Above is a two year chart for Sirius XM showing a potential cup and handle formation. While investors should not choose their investments based upon technical analysis alone, it is important to understand what traders will be looking at and price projections if sure events play out. I wrote about this formation years ago in May of 2012 and the alike formation played out in textbook fashion, moving the stock from a break of $2.40 to just near my target of $4.25 at $4.18 in October of 2013. Anyone buying on that pullback saw appreciation from $1.80 to over $4 per share, well beyond a double in 17 months.
What is seen above is the exact alike pattern. What investors should understand is the emotion that goes into this share price activity. Staring at your holdings which were once worth $4 per share and almost two years later staring at your holdings which are nearly break even at $4 per share will cause a lot of holders to sell out. They rode out the "cup" from $4 to $3 and back up to $4 and may be happy to sell and run.
These sellers form a brick wall of resistance and the stock pulls back slowly and forms the latter part of the formation or "the handle" as it is called. It's a shallow and controlled pullback caused by the building of new positions on improved company performance or renewed optimism about future prospects, in conjunction with the selling pressure by those who just want to "get out."
What may end up happening in the case of Sirius XM is that sellers eventually become exhausted. Good news or anticipation of good news or a specific event causes renewed interest in the stock and the downtrend of the handle is broken to the upside. Without much room to run before it hits resistance, and with eyes on a breakout of the $4 level by traders (which can move very quickly) there becomes less interest in selling or shorting the $4 level. Since that area has not seen a sustained breach in years, a move above signals significant strength and should bring renewed interest into the stock.
This will be something to watch and it's something to be aware of ahead of time so one can understand, at least partially, why it is happening.
And what could cause a move like this? Since October 2013 Sirius XM has been consistently doubted based on a unmarried quarter of activity. Since then the company has performed consistently at or above its own guidance, and in Q4 of 2014 posted some exceptional results that surprised many. The Q1 2015 1 cent miss was easily explained by a charge taken on a change in tax code and since that charge was taken fully in that quarter, it will provide some benefit going forward to Sirius XM's effective tax rate.
The only wild card to be aware of is the new settlement by Sirius XM to pay $210 million to record companies for use of pre-1972 recordings. This charge may be taken in Q2 or Q3 or if successful it may be delayed by The Turtles' attempt to halt the settlement due to their ongoing class action lawsuit. This is a significant charge that could eventually impact earnings and thus headlines surrounding the quarter the charge is taken. While it is "old news" already, that doesn't mean various headlines that would claim doom and gloom on an earnings "miss" wouldn't have an impact.
If you're long, I'd suggest simply staying the course and adding at or under the 50 day moving average. If you're looking to trade, Sirius XM is in tricky territory at the moment. It could easily break skyward on a meet or beat of guidance in its Q2 report, or it could easily fail the technical formation above and break down on deceptive headlines if the settlement charge above is taken and causes an earnings "miss." For traders that may mean hands off for the second until it's clear which way earnings will take the share price.
Disclosure: I am/we are long SIRI. (More...)I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am long SIRI Jan 2016 $2.50, $3 and $3.50 calls. I may trade some or all of my SIRI holdings as opportunity permits, or against my long call positions.
We only use your contact details to respond to your request for more information. We do not sell the personal contact data you submit to anyone else.
#Setti #El #Rhazi
No comments:
Post a Comment