Sirius XM Technicals Signal 7-8% Upside

Since reaching a bottom on April 28th, 2014, shares of Sirius XM Holdings Inc. have rallied in a tight trading range to $3.49, representing a 17% increase in share price. Even with this recent run-up, the chart is still showing 7-9% upside in the stock’s price near-term.
Background
As can be seen in the chart above created on Freestockcharts.com, shares of Sirius XM have been trading in an extremely tight channel, making higher highs and higher lows for the past two and a half months. While in the uptrend, the first sign of bullish evidence occurred: a convergence of the 10, 20, and 50 day moving averages. The first of the bullish crossovers occurred on May 1 when the 10 day moving average crossed over the 20 day. This signaled that the stock’s previous downtrend was nearing an end. Then, between May 23rd and May 27th, the 10 and 20 day moving averages crossed above the 50 day moving average. This crossover indicated that the rally was “real”, giving investors the confidence to begin buying the stock again. Since the crossovers, the stock has found support at the 10 day moving average multiple times, and has only closed below it once (June 16). Throughout the recent rally, shares of Sirius have not tested either the 20 or 50 day moving averages.
Recently, Sirius XM has found a horizontal line of resistance at $3.49. Shares have attempted to break through this point of resistance three times in the last eleven sessions with no success. Typically a firm point of resistance, as seen above, is seen as a negative for stocks. This particular chart signals something different, as shares of Sirius have maintained the upward trending line of support established earlier in the recent rally. And, as mentioned above, the stock is continuing to find support at its 10 day moving average. This is creating a very bullish technical pattern.
Potential Breakout
According to Investopedia.com, stocks that display upward trending support with a horizontal line of resistance are creating a bullish continuation pattern known as an ascending triangle. Ascending triangles have proven to be leading indicators of stock breakouts in the past, with the underlying stock continuing the same it’s previous trend shortly after breaking through a horizontal resistance level. I believe shares of SIRI will soon follow suit, and experience a breakout of the same nature. For this reason, I estimate that shares of Sirius XM could reach the upper end of the continued trading range ($3.73) as soon as July 17th. A move of this magnitude represents 7.8% near term upside versus the stock’s current price
Risk Factors
When evaluating Sirius XM’s stock for this article, no fundamental analysis was done. The lack of fundamental analysis creates significant risk for investors looking to initiate a position in the stock with a long-term time horizon. I would like to make clear that any opinion I provide in this article has any link to the health of the underlying company. Therefore, the risk implied with shares of Sirius XM radio may be much greater in the long term than I describe in this article. To reiterate, the analysis and thesis of this article is based only on the recent price action of the stock.
Conclusion
With the recent display of technical bullishness, I believe Sirius XM is ready for a breakout trade. In order to take advantage of the breakout, I recommend buying the stock on any move above the $3.49 resistance level. After purchasing the shares, place a stop loss just below the 10 day moving average at $3.42. The stop loss provides protection in case the stock is unable to break through the resistance level, causing a technical break down in the stock. With the stop loss in place, the down side risk of the trade is limited to $.07 or 2%. The possible reward would be between represented by a short term appreciation of share price of between $.24 and $.26 or 7-8%. With this risk-reward ratio, I would like to reiterate the strategy: go long SIRI on any move above $3.49 with a stop loss in place at $3.42.