SIRI Stock: The Earnings Catalyst That Completed the Price Pattern
The second-quarter earnings numbers are in and they are better than expected. As a result, Sirius XM Holdings Inc. (NASDAQ:SIRI) stock is surging higher on the news. SIRI stock is currently up 6.92% on the day and this surge in the stock price is a result of good news on all fronts. The company managed to beat expectations on both the top and bottom lines, which was driven by an even more impressive number that entailed a record number of subscribers. The fundamentals back these gains, but it is the technicals that have me returning to update my long-standing bullish bias.
I have been holding a bullish view on Sirius XM stock since July 26, 2016. This bullish view was highlighted in a publication titled “Sirius XM Holdings Inc.: This Chart Shows SIRI Stock on the Verge of a Major Breakout,” where I outlined the technical developments that suggested that $8.00 was a viable price objective and a bullish view was therefore warranted. Since that publication, this investment has appreciated to the tune of 32.41%.
This recent surge in prices that was fueled by better-than-expected earnings has caused the completion of a technical price pattern that is suggesting that higher stock prices are on the horizon. The following Sirius XM stock chart illustrates this completed price pattern.
Chart courtesy of StockCharts.com
The technical price pattern I am referring to is highlighted on the SIRI stock chart and is a “cup and handle” price pattern. This pattern contains two troughs, where the first trough is much larger than the second. These troughs were created when the stock price reached a significant level of price resistance that caused a sell-off to ensue. These reactions off this level of resistance created the cup and handle pattern.
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The better-than-expected earnings report caused the stock price to gap above this resistance level, indicating that the cup and handle price pattern is complete. The completed pattern carries bullish implications.
These bullish implications entail higher SIRI stock prices. The great thing about a cup and handle pattern is that it also provides a potential price objective. This potential price objective is generated by taking the depth of the cup and extrapolating that value above the level of resistance that served to define the pattern. This produces a potential price objective of $6.25.
This price objective is not the $8.00 target I referred to in the title, but it does suggest that SIRI stock is making progress towards it. The following long-term Sirius XM stock chart illustrates the bullish indications supporting this company’s advance, as well as the price action that helped define the $8.00 price objective.
Chart courtesy of StockCharts.com
This SIRI stock chart highlights the bullish run that began in February 2009, in the aftermath of the financial crisis. This bullish run towards higher stock prices contains the quintessential characteristic that defines all bullish runs, which is a series of higher highs and higher lows. This bullish move is easily captured using a simple uptrend line.
Aside from capturing the bullish trend, this uptrend line also acts as a dividing line that separates this investment from a bear market. As long as Sirius XM stock is trading above this trend line, then this investment is still within the confines of a bull market, and therefore, higher stock prices can be expected to follow. Breaking below it would suggest that the bull market in this investment has concluded, and therefore, lower stock prices should be expected to follow.
In July 2016, Sirius XM stock was finally able to break above a long-standing level of price resistance that stood at $4.30. Breaking above this level is why I first became bullish on this investment, and it is also where the $8.00 price objective was obtained. This objective was generated by taking the depth of the pattern below the horizontal level of resistance and extrapolating that value above it.
In October 2016, the moving average convergence/divergence (MACD) indicator confirmed the bullish assumption suggested by breaking above the horizontal level of resistance. MACD is a simple and effective trend-following momentum indicator that uses the crossing of a signal line to distinguish between bullish and bearish momentum.
A bullish MACD cross suggests that bullish momentum is influencing the trading action in an investment, creating a path of least resistance that is geared towards higher prices. The price chart clearly shows that when a bullish MACD cross is engaged, the stock price has a strong tendency to stage a bullish price advance.
This MACD indicator remains in bullish alignment, supporting the bullish view suggested by the completed cup and handle price pattern.
Bottom Line on Sirius XM Stock
The surge in Sirius XM stock following the better-than-expected earnings report caused the completion of a technical price pattern that suggests that higher prices are likely to follow. This pattern serves to reaffirm a bullish view on SIRI stock that was already suggesting that $8.00 is a viable price objective.