Sirius XM: Get Ready for a $2 Trading Top

NEW YORK ( TheStreet) -- Nothing bothers me more on Wall Street than when someone asks a question they already know the answer to. It is as if asking the question can somehow magically alter the current reality.

Many continue to ask whether or not shares of satellite radio giant Sirius XM ( SIRI) will start to trade higher based on factors like moves being made by Liberty Media ( LMCA). These questions are being raised as the market is providing the answers.

Shares of Sirius continue to drop below the magical $2.00 (reaching the $1.97) level for the first time since surpassing that mark in early January.

While this drop was not a surprise, what caught me off-guard was the reaction of investors questioning their own resolve to hold on to the stock. If one is comfortable with the long-term outlook of the company, current levels should actually present a significant buying opportunity. Instead, many have opted to be fearful.

The fact of the matter is, Sirius has been one of the best short candidates on the market since the stock was in the $2.40s several weeks ago. I made a case for how market dynamics would not allow it to hold those valuations specifically from the standpoint of its P/E. Furthermore, this has not been a stock with a reputation on trading on fundamentals and based on recent factors I am inclined to think that it may start to trade under $2.00 for the next several months.

As dire as the chart may appear, it was also filled with opportunities where investors could have exited with sizable gains. Disappointingly, investors have allowed their emotional attachment to the stock to consume their ability to think rationally. Remarkably, many are now wondering whether or not to exit their positions under $2.00 whereas that option was deemed completely out of the question in the $2.40s -- I don't think that this is something that I will ever understand.

As the chart above shows, Sirius is now under a considerable amount of pressure. However, there are a couple of things to consider as investors mull over their positions.

First, the stock's current value is 12% and 10% below its 50-day and 100-day moving averages. Second, it has now tested that all-important 200-day moving average at $1.97 suggesting that a near-term top may eventually emerge right at the $2.00 level -- contradicting notions of $2.15 having somehow become a "new floor."

Investors also need to keep a watchful eye of the $1.95 level. While not a huge number, for Sirius it has always served as a psychological barrier. If it were to be breached, there is virtually no chance that it will stay above $1.90 -- lending more evidence to the likelihood that the stock is going to be dead money for the next six months.

I don't see how anyone cannot applaud Liberty for what it has been able to do. Essentially, it has played this situation as well as it can be played. Not only has it shown it is unwilling to pay the premium investors think that the stock deserves, it has timed its recent moves during periods where weak hands are known to bail -- hence "sell in May."

From that standpoint, it seems everyone else has already started exiting their positions - essentially, astute investors are beginning to listen to what the market is saying, while those who are caught "wanting to be right" go down with the ship.

Bottom Line

While Sirius is a great audio entertainment service, unfortunately it has not translated to a great investment -- at least not to the extent that current investors would like. There are just too many moving parts -- some of which are squeaking.

Liberty continues to capitalize on this great timing by benefiting from a bearish market, insider sales and feeble shareholders' resolve -- some of which are simply unable to withstand further disappointment. The smart thing to do here would be to sell the stock before it succumbs to more bearish pressure in a market that is now poised to punish anything with questionable fundamentals.
At the time of publication, the author held no positions in any of the stocks mentioned.