Over the past six months, the New York radio company has rallied about 15% on a total-return basis, besting the S&P 500’s 9.4% run over the same stretch.
Now, Sirius XM is set to report its fourth-quarter results on Tuesday.
On average, analysts surveyed by FactSet are looking for earnings of 5 cents a share.
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The question is whether earnings will derail the rally or present a new buying opportunity.
To help figure that out, we’re turning to the charts for a technical look at Sirius XM’s likely outcomes.
At a glance, it’s not hard to figure out what’s been happening in Sirius XM’s chart – the price pattern of the shares is as basic as they get.
Since last June, Sirius XM has been bouncing its way higher in a well-defined uptrending channel, catching a bid on every successive test of trend-line support along the way.
That upward price channel provides an important risk-reward band for investors in Sirius: If the shares stay within that channel, more upside remains likely.
On the other hand, if the initial earnings reaction sends the shares below the bottom of the channel, it opens up significant downside risk.
Simply put, this chart is in make-or-break mode right now.
The good news for Sirius XM bulls is that earnings risk in these shares historically hasbeen pretty muted.
Over the past 10 years, the average absolute one-day price reaction to earnings has been 3.4% - not an Earth-shattering move in either direction.
So, how do investors play Sirius XM’s earnings print?
For starters, it makes sense to wait for the earnings reaction before jumping into a position here.
While this stock’s reactions tend to be muted, it wouldn’t take much to violate Sirius XM’s uptrend. Waiting for an initial bounce here means that you’re verifying that the shares can catch a bid at support before you go long.
Since Sirius XM is testing trend-line support alongside the earnings, even a relatively muted positive earnings reaction leaves solid upside for this stock to work its way back to the top of its price channel.
Meanwhile, if Sirius XM closes materially below $7 support on the heels of the Q4 numbers, then the uptrend is violated and you don’t want to own the shares anymore.
Waiting for the earnings reaction rather than trying to anticipate it looks like a good bet, given Sirius XM’s make-or-break technical setup this week.