Sirius XM Holdings, Inc. (SIRI) got sold in late April after reporting in-line first-quarter earnings while reaffirming fiscal year 2017 guidance. The decline is now approaching technical support levels that should support a strong bounce and resumption of the uptrend that began following a multi-year breakout in July 2016. The rally still shows considerable upside potential, allowing sidelined market players to get on board a relatively slow moving train.
The company occupies a unique technology niche, transmitting old school audio entertainment through high-tech delivery systems. Product demand isn’t infinite, given today’s diverse platforms for voice and music transmission, but they’ve done an admirable job holding onto existing customers and contracts. Saying it another way, 31.6 million subscribers should keep a solid floor under price through 2017 and beyond.
SIRI Monthly Chart (1994–2017)
The company came public at $4.50 in September 1994, 14-years before its life-saving merger with XM Satellite Radio, and sold off to $1.63 a few months later. It then entered a choppy uptrend that tested nerves and trading accounts with repeated downdrafts, finally lifting to an all-time high at $69.44 at the height of the Dot.com bubble in 2000. A topping pattern broke to the downside in 2001, generating a steep decline that dumped the stock to 39-cents in 2003.
It bounced strongly into 2004 and stalled at 50-month EMA resistance near 10, with that peak marking the highest high in the last 13 years. It then entered a persistent downtrend that continued into 2008 when the bottom dropped out in a dramatic plunge that hit an all-time low at 5-cents in March 2009. Somehow, the company avoided bankruptcy, ticking higher in a slow motion advance that reached $2.44 in 2011.
The stock has stair-stepped to higher ground for the last six years, but gains have been limited. Also, price action has failed to post a single higher high since the 2000 peak, highlighting its dubious position as the lowest-priced and sole single-digit Nasdaq-100 component. Not surprisingly, that connection is underpinning currently bullish action, with the tech-heavy index leading the bull market in a series of all-time highs.
The uptrend crossed the 50% retracement of the 2005 into 2009 downtrend when it broke out above multi-year resistance at $4.18 in 2016. This price action bodes well for additional upside that reaches the .618 retracement level at $5.83 in coming months. The 200-month EMA is declining toward that level, advising long-term shareholders to consider timely exits into the $5.75 to $6.25 price zone.
SIRI Weekly Chart (2012–2017)
The stock topped out at $4.18 in 2013, giving way to a rounded correction that yielded a July 2016 breakout to a 10-year high, followed by a buying surge into year’s end. The momentum-fueled advance spiked above $5.00 in March 2017, hitting a buzzsaw of aggressive selling interest that triggered a reversal into April. The stock broke support at the 50-day EMA after April 27 earnings and is now trading near a 3-month low.
The decline reached with 10-cents of a 15-month rising lows trendline last week, with that support level aligned tightly with the .386 Fibonacci rally retracement at $4.67. The 50-day EMA lifting into the trendline adds a third technical element that raises odds for a reversal and strong bounce in coming days. It also identifies a conservative risk management plan, with a tight stop loss on the other side of the trendline and moving average.
The Bottom Line
Sirius XM broke out above 2-year resistance at $4.25 in July 2016 and entered a strong uptrend that stalled above $5.00 in March 2017. A 2-month pullback has dropped relative strength indicators into oversold levels while the price has reached support, with both factors favoring strong upside into the summer months.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>