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CHART ANALYSIS


Tuning In To XM Satellite Radio

05/31/07 08:42:35 AM
by Gary Grosschadl

Has a bottom finally shown up to produce a tradable bounce?

Security:   XMSR
Position:   Accumulate

The year 2007 has not been kind to this stock, since XM Satellite Radio (XMSR) has declined from $17.50 to near $10. There are several hints that a tradable bounce may be occurring, however (Figure 1).

The first hint is a move above the often telling 20-day moving average (in this case, the exponential moving average). I refer to stocks in a decline that stay under this moving average as being in "failure mode" — bear rallies that fail at this overhead resistance. For the first time in several months, this stock has finally closed above the 20-day EMA. This points to a possible bounce beyond its typical bear rallies of late.


FIGURE 1: XMSR, DAILY. This chart suggests a bottom bounce.
Graphic provided by: StockCharts.com.
 
As always, it is wise to look for collaborative evidence or signs. At the top of the chart, we see that there is a bullish crossing of the directional movement indicators (DIs). This points to a shift to bullish power (the green +DI). Below the chart, there is evidence of positive divergences via the moving average convergence/divergence indicator (MACD) and the relative strength index (RSI). When a stock makes new lows but indicators instead go the other way, a bounce is often in the works. Early action shows this to be the case. The stochastic indicator shows some upside room but is getting into an overbought area.


An upside target zone is shown by virtue of a trendline near $13.25 and an area of previous support and resistance near $14.25. The stock may have to first consolidate a little before hitting this target area, but the 20-day EMA must hold; otherwise, a potential double bottom could develop, meaning another bottoming downleg. Stay tuned to XMSR Satellite Radio for a clearer emerging signal.




Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

Website: www.whatsonsale.ca/financial.html
E-mail address: gwg7@sympatico.ca

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