SIRI Stock Has Serious Upside Potential
Sirius XM Holdings Inc. (NASDAQ:SIRI) stock is on the verge of entering the stratosphere. But I’m not asking you to take my word for it. While I am just an analyst who has spent the majority of the last 18 years charting, trading, and studying the financial markets, I’ll walk you through my reasoning, so you can see for yourself. (Bonus: I’ll also offer two examples of possible strategies you can use to potentially profit from this information.)
So what exactly drew me to SIRI stock? The answer is always simple: its chart. SIRI’s 10-year stock chart is shown below. Notice that the uptrend line has been intact since shares of SIRI stock bottomed in 2009.
Chart courtesy of www.StockCharts.com
Uptrend lines are drawn by connecting the valleys that appear on a stock chart with one straight line, almost like connecting the dots. These lines help define the stock’s trend and its levels of support.
In Sirius stock’s chart, the horizontal resistance line has stood for 2.5 years, representing a level where sellers appear and have capped further share appreciation. Since October 2013, shares have been trading in a sideways range, forming a consolidation.
I would describe the price action as bears and bulls caught in a battle, fighting to gain a foothold for their respective camps. The longer the battle continues, the better the odds are that one victor will emerge. When one side wins, there will no longer be any resistance from the other camp.
The duration of the battle is directly correlated with the power emitted as the trend breaks. Powerful breakouts are common among long consolidation patterns. In the case of Sirius, July 26, 2016 marks the day that the bulls were victorious. Shares of SIRI stock broke out of the range on news of better earnings.
Now that we have discerned a direction for SIRI stock, we need a price objective in order to build a strategy. If we redraw the chart and highlight the giant cup-and-handle pattern we can gain more insight into a possible price objective.
Take a look at the chart below:
Chart courtesy of www.StockCharts.com
The cup-and-handle formation signifies a continuation pattern. That pattern is confirmed when prices close above the neckline. The beauty about this pattern is that it provides us with a price objective. The depth of the head is extrapolated above the neckline to produce a price target, meaning the share price target for SIRI stock is $8.00.
Possible Strategies for SIRI Stock
As mentioned above, I’d like to offer you a couple examples of investment strategies you could consider for a stock like Sirius XM Holdings Inc. As usual, before employing any investment strategy, performing your due diligence is key.
Below are two strategies you may consider:
- Buy the stock outright and hold it until the price target of $8.00 is met. Buying shares outright will require an initial outlay of $4.35 per share. However, when SIRI stock hits the $8.00 price target, your net return would equate to 84% (not including applicable fees).
- Use a derivatives contract to lower the initial outlay. Buying one March 17, 2017 $4.50 call contract for $0.26, at expiration, if shares are at your target of $8.00, the net value of your trade would be $3.50. In this example, this strategy would offer a potential net return of 1,246% (not including applicable fees). Note, however, that this strategy also increases your inherent risk.
The Bottom Line on SIRI Stock
SIRI stock is breaking out of a technical consolidation pattern that is pointing to much higher prices ahead. I have outlined a couple of strategies that could be used to try and capture the potential gains of a stock like Sirius XM Holdings Inc. The key to using any strategies is to understand the inherent risks associated with each one. Managing risk is, above all, the most important aspect to any strategy and should never be overlooked.