Sirius XM’s Chart Breaks Out

By: Gino Lattarulo

On Sept 8th the stock action for Sirus XM (NASDAQ:SIRI) broke out of the triangle pattern it had been forming since early May of this year.  The stock gained further strength out of the pattern when Mel Karmazin re-affirmed 2010 guidance of revenue around the $2.8 billion mark.

After a consolidation period of  four plus months we can see on the daily chart where it broke upward through the trend line at approximately $1.02. Coincidentally this is the same point in which it broke through the ever important 50 day Moving Average. Usually after this type of pattern breakout a stock’s price action will re-test the trend line before continuing upward. We can see in the chart that this did not happen. The price moved sideways in a 4 day continuation pattern before continuing its upward movement. It is important to note that although the volume did not spike  dramatically it has not declined from its average and Relative Strength has remained close to or above the 50 mark.  January 2011 call options activity is seeing some action at the $ 1.50  strike and interestingly enough the $2.00 strike seems to be waking up a bit with some respectable volume.  Open interest for that $2.00 strike is currently around 23,000 . This is not overly significant because there could be bears out there looking for insurance policies but in any case it does show some bullish sentiment.

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The weekly chart shows us a long term upward trend beginning in February of 2009 and continuing on to the present day. Price action has remained tethered to the 30 Simple Moving Average ever since the “cup and handle” pattern formed and completed from January to May of 2009. Weekly volume has been consistently higher than average since the beginning of 2010 and relative strength also has been near or above 50 since the beginning of 2009. To the right of the chart I have marked a resistance line. This represents a price ceiling that has been in place for a solid year which Siri has not been able to break through.  I personally believe that this latest break out pattern indicates that the stock will move through this ceiling soon but be careful about buying in right away until it closes above $1.25 because the overall market and the stock itself is in an overbought condition and a pull back is coming.  If you do not own shares and decide you just have to jump onto the hype wagon right now, do yourself a favor and only use a portion of your allocated money until the price either re-traces or breaks through resistance.  Either way it is a winning situation.

The next few months will be very interesting with the final quarter of earnings just around the corner. Remember to protect yourself and don’t go crazy just because the talking heads on the news are telling you to buy. Always remember that it is the market’s job to take your money. The big money brokers have spent 200 hundred years learning how to do it and they do it well.

Long SIRI