Probably the most common and frequent question I receive regarding Sirius XM is; “What’s going on with the stock?” It certainly occurs regularly on our weekly SiriusBuzz Radio show. I thought I’d take this opportunity to answer that question.
Recently Mel Karmazin made a statement that he couldn’t control the stock, only the company. And he is right. Stock prices are dictated by the law of supply and demand. If there are more buyers than sellers, the price goes up; more sellers than buyers and the price goes down. It really is that simple.
It is out of this simplicity that technical analysis was created. Ironically, many technical charting tools can be so complicated that they bewilder individual investors. They can also give false signals because they react to every tick. One of the most simple and accurate types of technical analysis is point and figure charting. It’s a simple system that takes out of the equation day to day fluctuations and paints a clear picture of the trend of any given equity. This is a system anyone can learn and it does not even require a computer. A sheet of graph paper is all you need. In fact, Dorsey, Wright & Associates introduced me to point & figure charting many years ago and they offer a free charting tutorial on their website.
For long term investing there is no better way of understanding the stocks in your portfolio. I have created a small chart below that represents the activity of Sirius XM stock for the month of August. I have also abandoned the standard box size because Sirius would have to rise to 3.00 to indicate a positive trend reversal, and we would miss out on over a 100% gain by the time we realized it.
The number 8 represents the month. O’s are downward movements. X’s are upward movements. Clearly we can see that the stock bottomed and held at 1.30 on 3 separate occasions. Today we ran into resistance at 1.49. Looking at this chart makes it clear that resistance would be found at 1.49, before it ever occurred.
My best guess is that we may trade within this range for the next few weeks. By viewing it in this manner an investor is better able to identify tops and bottoms, and makes any potential negative reversals less intimidating. The key to it is that it requires a 3 point reversal to change the direction on the chart. The trading range is so tight here, that a reversal to 1.30 would be required to change the direction of the chart. Longs will want to see the stock hit 1.50, as this would indicate a positive breakout. Shorts would want to see 1.25, as this would certainly be a sign of further losses.
We seem to have an established bottom, and as of today an established top. I hope I have made this as simple to understand as possible.
