The market will over shoot the top like it always does in this situation and the sell off will begin. SIRI is aware of this and will use the buy back to provide a back stop for the shares in the lower half of THE CURRENT TRADING RANGE. That way they get the most shares for their buck. Enjoy the ride up.
The 2022 Senior notes contained limitations on the amount SIRI could borrow to fund non essential corporate purposes. These non essential corporate purposes included the buy back of shares and payment of dividends to shareholders. The Notes provided that the limitations would be lifted if two of the three ratings agencies changed their ratings on the Notes to Investment grade from junk status. A couple of days ago SIRI upgraded the collateral backing these Notes and now the Notes have been upgraded to Investment grade by two agencies.
What does it mean? SIRI is now free to go back to the bond market to borrow 2B to fund the second buy back and the stock should rally in anticipation and on the announcement. It then becomes a short again.
I am guessing that it comes after the CC call. SIRI usually has a rough May so the timing fits. The company will have to announce something like a funding of the second buy back to avoid the sell off.
I see that many of the traders who read me are worried about their buys. No one knows the future but today's little sell off merely completes the full 38.2% retracement of the 4.18 top we had. 4.18 minus 1.27 equals 2.91. 2.91 x .382 equals 1.11 meaning the retracement was complete at 3.06/07. You should have expected this at some point.
SIRI has been selling off 4 days in a row the rallying for four days. Tomorrow is a new cycle. We shall see. Check the 8:00 close for a hint.
Back on 12/31/12 SIRI closed at 2.89. We opened 2013 at 2.95 which was the low of the year and was duplicated in 4/13. You know The Duke and his gap theory so I have always maintained we will ultimately fill that gap which means a trip to 2.90/2.91. Now the second part. What was the high in SIRI? 4.18. What was the flash crash low in SIRI in 10/11? 1.27. 4.18 minus 1.27 equals 2.91. SIRI's Da Vinci code.
So how does this whole thing work? I told you that the last downturn in the stock meant SIRI had gone from an intermediate down turn to a long term down turn. Why? The flabby retracement pattern for the intermediate downturn 4.18 minus 2.89 would have given us a bottom at 3.16/3.17. The bottom was 3.09. Now look at the long term retracement pattern. 4.18 minus 1.27 equals 2.91x382 equals 1.11. 4.18 minus 1.11 equals 3.07. About as good as you are going to get. The 50% retracement pattern means a drop of 1.45/1.46 which translates into 2.73/2.74. If you don't like it blame Flabby. I just do the math. BTW, that does not mean that that is the ultimate bottom. You can do the math for real ugly numbers. Kudos to WW who figured most of this out.
Friday's sell off in the market is the harbinger of things to come. There is a chance that this will lead to a significant sell off but the market isn't ready for that 20/25% sell off just yet. We hit long term resistance on FRI but have yet to hit 1925 on the S&P.
The IRA money disappears in 10 days and the Japanese consumption tax has kicked in so expect a bumpy ride for a while. Ultimately, the ride down will be healthy for the market and SIRI but it won't seem so if you are on the wrong side of the trade. Last week I gave you some tools to protect yourself. If you shorted against the box, you are probably thanking me. We all know you didn't do that because The Duke is always wrong. I read that somewhere on the Yahoo message board.
So in essence the CBH were handed a license to steal. Good deal if you can get it. But, of course, the game isn't over and it is your refusal to understand the game that is causing you so much anguish. When 12/1 comes the CBH will be handed 294M shares for their bonds. That is the theory but the practice is totally different. If you are short because your shares are locked into a trade gone wrong the shares are magically taken from you by the broker to offset the trade. THE BONDS WERE YOUR COLLATERAL AND NOW THE BONDS ARE GONE SO IT IS TIME TO CLOSE THE TRADE. The CBH long since took the money from the trade so they stand to get nothing for the bad trades. So what have they been doing since I predicted SIRI would fall last Oct....acting like good CHB's driving the price of SIRI down so they could liberate as many shares of SIRI as possible before the 12/1 call date. If you understood this principle you would have been short like The Duke rather than calling me all those names. The names didn't make you any money. It also explains why some guy wrote a post entitled It Is All Technical But No One Understands It last weekend.
So why might the CHB want SIRI shares. Maybe once the artificial overhang of the CBH's is removed, we should see the price of SIRI soar...depending on market conditions and The Duke will be a long again. Then the shorts will hate me again. That is what WRONGWAY and you missed.
The Da Vinci code is to tell the MM how bad this thing is going to get on the downside so they can plan without losing their shirts. The chief MM has left a clue where he will set the base from which he will rally the stock. This little rally that I predicted was the test case and you saw how quickly it evaporated back to my trading range. So what is the CODE?.
SIRI has always had codes. Understand the codes and you have a reasonable chance of predicting where the stock is headed. Ignoring the codes, as most of you do because you don't like what they say, leads to frustration and bewilderment. Let me begin by sharing some of the trader codes I use to predict price movement in SIRI. The MM have to communicate with one another so that they can act in concert. They have developed a group of codes that you should have deciphered by now.
The first one is the rogue trade code. I reposted a thread from stevejobs who returned from the dead to tell us there was a rogue trade in the PM of 3.41 on 3/31. SIRI had closed at 3.16 on 3/28. Last Sunday I told you to go long and that SIRI would break out to the upside. The rogue trade code told me the MM planned the breakout sooner than I anticipated so I bought the stock on 3/31 for the ride. High for the week 3.40. It was right there all you had to do was read it and follow the code. I sold at 3.39. FRI brought another rogue trade code. Did you catch it? It isn't completed yet. The trade was at 3.15 in the PM. I was already short at 3.39 since the boys had graciously told me 3.41 was the top. We will see if we hit 3.17 tomorrow where my cover bid is waiting.
To understand SIRI's Da Vinci Code we have to return to one of The Duke's favorite topics...the CBHs. I actually revealed the foundation of the code a few months ago but as usual you chose to ignore it since all of you knew SIRI was headed up to $4/5 so why bother with The Duke's explanation of how convertible bonds work. It is more interesting to read WRONGWAY'S predictions. Here is how the bonds work. The converts were handed 294M shares to short against SIRI after the merger. They are in a win win situation. If they short and the stock goes down they cover and make a profit. If they short and the stock goes against them then they sit there and collect the interest until the bond matures on 12/1. Great deal..Part 2.
If you had shorted against the box, you would now have enough to pay off your taxes AND buy some more SIRI, I guess no one listens.
Second, who were the buyers on the dump...other than The Duke. How about the HF who heeded GS and sold out at 3.85 in Oct and now see a "better entry" price for themselves now that the stock is down 20%. Then, of course, the MM had to absorb part of that 600M share dump so SIRI didn't collapse. They bought it so now they have to distribute it at a profit so that will underpin the price. We should start seeing lower volume days with an upside bias. Fourth, look back at 2013 Q1. When the stock broke $3.00 it traded from 3.00 to 3.25 for 3 months until its break out in April. This gives it a deep and long base here which will not be easily broken. Fifth, the technicals in SIRI are so bad that they can only get better..check out the MACD. Is there a number below 0. Lastly, the fundamentals improved this month. T announced on 3/23 that its sales were up 4% over last Mar. The auto co. have brought big incentives. This will work for a couple of months. So SIRI recovers right? No. We are going to be locked in a trading range between 3.09 and 3.25 for the foreseeable future with the bulk of the trading between 3.11 and 3.22. Play the range accordingly. Without a black swan event the break of the trading range should be to the upside before the final push to the downside and is likely to be news related. SIRI controls the news for a while and the MM and Liberty should provide downside protection.
I see that I didn't get to my prediction for the bottom in SIRI. Guess we will have to leave that for another day. Here is a hint. SIRI has its own DIVINCI Code. Break the Code and you will be able to predict the bottom. All the keys you will need are contained in this post. As I said, it is all technical, but no one actually understands it.
Back in Oct. I told you to expect a 5 wave downturn that would ultimately close the $2.90 gap that existed in the stock for 15 months. People laughed. Now the same people are planning to buy at 2.90 but they haven't a clue how low we are really going. Back in Dec. I told you there was a chance that this intermediate downturn would morph into a long term downturn but no one would realize it. This was 4th leg down of the 5 I predicted but the bottom of the sell off confirmed the transition and now insures a deeper correction than what you expect. Flabby has it figured out. But that is the future and we live in the present.
Let's figure out the technicals that caused the selloff from 3.35. First, the ARBs were caught over at LMCA and the quickest way for them to get even was to short SIRI which they did to get even. LMCA followed SIRI down. Second, the unwind of the ARB position meant covering LMCA after it fell and shorting SIRI. Hence the bump up in the SI. Third, the CBH shorted again. Fourth, LM 3.68 offer told the everyone that the most informed investor in the world thought SIRI had limited upside potential and they dumped. Finally, all the people who expected a higher deal price dumped. Pretty simple call. The Duke covered his LM post announcement short at 3.12. Too bad WRONGWAY didn't understand the technicals. He is down 25%. Those Jan 2.50 calls have slipped from 1.07 to .80 bid. Must be time for another brilliant SA confessional.
So you got it all figured out... buy at 2.90. Good Luck with that one. You see folks, The Duke not only covered his short but went LONG at 3.12. I sold that position twice since TU but I sure I will get another buying opportunity. Let's look at why being on the long side is the right side to be playing.
LM got it second collateral call at $3.35, first one at 3.65. Did LM post cash for the call? No, SIRI announced the BB date of LM $340M it owes LM and LM assigned the proceeds to the banks. Next call is at 3.05 so LM defends 3.05.
I see it every day. People making mistakes and losing money because they don't understands the fundamentals of investing. This week Southernbeachguy responded to my last post by saying I got the drop correct, he reads me, many times doesn't agree but he was locked into his long term SIRI position due to the 20% Cap gain rate. Really, maybe you should read me more often. First do you guys understand that the 20% rate only applies when your TAXABLE INCOME is above $400K for Single and $450K for MFJ. I read your rantings and I find it hard to believe that you earn 500K but I guess miracles do occur. So let's say you are in the upper one half of one per cent of wage earners in the country, was there a way to play the downturn I predicted without losing your LTG status. Two ways. First change your account over to a Margin Account and then SELL SHORT AGAINST your own position. It is called shorting against the box. You now have two positions and your account is in effect frozen at the level you sold the shares. I told you to sell at 3.85. The stocks drops to 3.55, you cover the short, make 30 cents a share and since you never sold the long position you still have LTG status with respect to those shares. The other technique is simple but more costly. Sell deep in the money calls...if you can find a buyer like WRONGWAY FAULKNER.
You want to see another group of guys who don't have a clue about the technicals...the three stooges. Go back to WRONGWAY'S 2/17 article entitled FOCUS & DISCIPLE IS NECESSARY. This is the article where WRONGWAY predicted LM would withdraw the offer and he bought $2.50 calls. 45 guys responded including CN and Spencer but not one understood the Arb play or that WRONGWAY was betting against himself. My response was "This should prove to be an interesting year for you". His response, Thank you for your well wishes (though why do I feel they are sarcastic). LOL. Guess who is LOL now? Any idea what happens next, how to play it or where the bottom is?
The real question is what lies ahead for the PPS and whether anyone will read Little Stevie ever again. Everyone assumes SIRI is headed up. First let's note that JM doesn't want that to happen but a trip to $4.00 would not hurt his long term plan.
This is where Duke's second rule of investing takes over. News may change the TIMING of a move but ultimately after the news wears off the direction resumes. See Barrons Cover or the takeover. Let's examine why the downtrend in SIRI will shortly resume. First, SIRI remains in the 3.35/3.62 channel. That channel has subdivided into three parts. 3.35 to 3.45, 3.45 to 3.55 and 3.55 to 3.63 and the failure of SIRI to break above the 3.45 level on 300M shares is telling. The channel will only be broken and views invalidated if SIRI moves above 3.65 so don't cheer a move above 3.45 tomorrow since it is only a move into the middle third.
Second, the unwind. The shorts may be trapped in losses in LMCA but since it follows SIRI the quickest way to turn those losses into gains is to force SIRI's price down so expect to see the SI rise in about a month. My guess is that the small move in the PPS on FRI is a sign that the shorts are back in force or every hedge fund sold out. Who sold the 300M shares?
Third, the technicals in the stock are terrible. The 50, 100 & 200 DMA are all sloping DOWN and the PPS is UNDER all three. The 50 day has had a DOUBLE DEATH CROSS of the 100 and 200. Last week the 100 did a DEATH CROSS of the 200. All the other indicators are negative.
Fourth, SIRI was declining before the LM offer. There was a reason for that...the fundamentals were declining. Things have only gotten worse in that regard as declining auto sales and excess inventory hit the industry. Pent up demand does NOT work. The auto industry change over to 2015 models starts in July. If the inventory is not worked off in Mar. the CALENDAR WILL FORCE PRODUCTION CUTS.
Last, Flabby's 78.6% retracement is 3.16. Saw it is the PM on FRI. Expect Retest.
If you remember days of the Reverse Morris Trust the spin off of New Co required the addition of another smaller company to make the tax free exchange work and JM has now positioned the Braves or Live Nation or both to be added to New Co. Under this scenario, SIRI will continue the buybacks until JM has his 1.7B investment back the RMT will occur and SIRI will wind up with the big debt to acquire LM's remaining shares and the other companies will be packaged into the spin. The second option is what I call the Live Nation option. JM wanted to acquire Live Nation at a certain price but the shareholders refused and the market took Live's price higher than JM wanted to pay. He simply waited for four years until the price dropped in the big market correction and paid the lower price when the shareholders were happy to sell. In this case the buybacks would continue to get JM his money back since I expect he will participate in a 50/50 fashion with the public. When the market ultimately takes SIRI down into the 2's that $3.68 offer with a cash sweetener will look very tempting to some. We have a two year reprieve so let's enjoy it.
If you didn't read this weeks SA articles then you missed some classics. Spencer opined that JM had alternative plans and was still the master. The truth is that JM lost the TWC deal and the SIRI deal and looks like a loser at 73. He might be over the hill but Spencer was named to write his biography so maybe he will leave us. The other joke was Little Stevie. He said he predicted that LM would withdraw its offer but he bought CALL OPTIONS on SIRI. He admitted that he did not understand how the ARB play worked but the light has just gone on because the unwind will drive the price lower. This doofus predicted the withdrawal and then unknowing BET HIS MONEY the opposite way. None of his readers understood the arb play either . You can read their praise in the comments. I thought I was going to die laughing and people actually read him. SIRI land.
There is joy in Mudville because for once the Mighty Casey hit the grand slam to send the fans home in a happy mood. SIRI has been preserved as a standalone company at least for a while and the home fans rejoice while few understand that this is just a momentary reprieve. Let's see if we can delve into the mind of JM and see what he is planning in the next couple of years.
If SIRI was a true independent company the special committee of the BOD would be thanked for their hard work in doing absolutely nothing for a couple of months, wasting 8M of shareholder money and dismissed so they they would have time to find their new Central Park West penthouses. But the Special Committee is not truly independent so they will continue their work. So what are they going to say...what I said they were going to say back on 1/5. The LM offer undervalued the company but only by a bit. The true value of SIRI is worth 3.80/3.85 and the combination of LM & SIRI offered SIRI shareholders some unique opportunities for long term growth and synergies between SIRI and the LM portfolio of companies. This is a pile of horse crap but expect to read it and Maffei will not only say I told you so but file it away for future reference to be used at a later date...2016.
So what is really going on here? JM has set up a two pronged strategy which is going to have precisely the same outcome as if LM acquired the remaining 47% of SIRI. The package is wrapped differently but the outcome is the same. The key to understanding both options is that SIRI will continue the buybacks which you love but will ultimately lead to its demise. Let's look at Option 1. LM set up two new tracking stocks, LM and Broadband. If you look closely you will see that the NEW LM will contain the Atlanta Braves, Live Nation and SIRI. What JM has done here is to divide the company into what he perceives as the slow growth and high growth components of the co.. The Braves are not a high growth component nor is SIri in JM's mind.
If you had read The Duke closely you would know how low the bottom might be and would not yet be in the stock.
Not too get to picky but the correction low was 3.32 on 12/18/13. I have been saying that the fed has no idea what the consequences of its actions are or will be in the future. it is just a grand experiment and its originator has safely flown the coup.
This week we saw the first break in the saga of Curly, Moe and Larry over at SA when Little Stevie wrote an article entitled Deal Or NO Deal You Win. The title is dead wrong but in the article he made the first valid point he has stumbled upon in three years. It follows upon my dilution argument of last week. Basically he said that the C shares do not exist and if the deal is approved the conversion from SIRI to the C shares will come with a 20% discount. I was banking on 15% but within a month we should see a 30 to 35% decline in what people EXPECT the shares to be worth. Why? The shares are a creation of of thin air. It is a tracking stock and does NOT represent ownership and you will be banking on how the market views the operation of the mutual fund. Anyway Little Stevie recommended a No vote which is a break from Spencer. Does this mean Larry is out and Shep is coming back...inquiring minds want to know?
Little Stevie also predicted SIRI at $5 before the end of the year to rev up the fan base without explaining why. Stevie why don't you give you reasons for a change and answer The Duke's concerns in Part 1. can't wait to read that.
The Minnow trader and CN showed you how NOT to trade SIRI this week. You NEVER try and scalp a few pennies at the TOP of a trading range because if (WHEN) it corrects down you are trapped. 3.56 to 3.62 is nice until it doesn't work although both will tell you they didn't buy at 3.56 on THUR. You scalp at the bottom of the range not the top.
If you are long you should be angry at JM. You missed a rally that could have taken you north of $4. Hey Stevie how does SIRI get to $5 when JM put in an artificial top a at $3.68? The high volume on Thur was directly related to what I wrote in Part 1. Without news SIRI zig zags down lower like it did on FRI on no volume. WW is correct. Patience. I have been out since 2/14. You should be out also if you are a trader. There will be a time to get back in but the high 3.40's is not the place.
You guys tend to live for upgrades and downgrades and therefore miss the suble changes that are occurring around you. Go to the SIRI homepage on this site and click on Analysts Estimates and scroll down to EPS Trends. In Feb. the consensus earnings estimates for Q1 and Q2 was 3 cents. They have now been cut to 2 cents for BOTH quarters. What also happened is that consensus revenue has been revised lower for both quarters. Consensus is now at 1B for this quarter and 1.02B for next Q. When you consider that 2013 4Q was 1B, this translates into no growth in first six months of 2014. A few weeks ago, I ended my post by saying a slide in SIRI's share price was "inevitable". It happened on FRI and now you understand why it occurred and why I said that we could break below the correction low of $3.32.
This coming FRI will end the first phase of the pension driven rally in the market and the unending rally should show some signs of fatigue in about 10 days. We never got that minor correction that I predicted back to the low 1800's and that represents a significant problem for the market. We are now in the midst of a blow off top where rationality has been left far behind. You want some proof of that? When the rally started I gave you ten stocks to watch. I did a quick search of those 10 this week and 6 of the 10 have exceeded their one year estimates. Check out WYNN, CMG, and LVS for example. When you see multiple expansion at these levels and the notion that the market is cheap everywhere, it is time to take some money off the table. We hit 1883 this week and if you were paying attention you would remember I predicted the S&P would hit 1925 and the correction would start in the late 3rd or early fourth Q. It is difficult to reconcile those two predictions and I won't try at this point. In the near term you should keep you eye on a default that occurred when a Chinese company failed to make an int. payment. Chinese credit markets froze and the ripple effects are coming.