Sirius Satellite Radio Inc (NASDAQ:SIRI) has been down and out recently. The stock has flirted with its 52 week lows ($3.60) only to climb out of the hole once again. Many Sirius investors probably could not tell why this recent jump up to $3.94 occurred. It must be the market makers manipulating the stock and taking advantage of us again. Boo hoo…

I am here to tell you that the signs are right there in your face. A few days ago I happened to look at Sirius on a 10-day hourly chart and thought mmm…there’s a positive divergence between price and the Relative Strength Index indicator (RSI), the stock should get a quick jump. The only thing I did not know was how high that jump would be.

So what did I see? Take a look at this 10-day hourly chart. You will see that at the same time the stock made two connecting “downtrend” points, the RSI had made two connecting “uptrend” points. This conflict in direction should tell you that the price will soon follow that of the RSI. And boy did it ever do just that. Now look at the move SIRI made towards the end of this chart!

Source: Bigcharts

Divergences are extremely accurate when it comes to predicting future price movement. As with any other indicator, the RSI can be used on any time frame and with any index or traded security.

If you are new to diverences and are unsure if you have spotted one or not, inform me of the stock ticker and what time frame you are viewing the chart on and I will be glad to help you determine whether or not you are on the right track. My goal here is to help you.

Good Investing…