Citigroup (C) in Rally Mode Ahead of Friday Report

Citigroup Inc. (C) reports fourth quarter 2020 earnings in Friday's pre-market session, with analysts expecting a profit of $1.27 per share on $16.6 billion in revenue. If met, earnings per share (EPS) will mark a 33% decline in profits compared to the same quarter in 2019. The stock sold off nearly 5% in October despite beating third quarter estimates by a wide margin, with investors walking away due to a sharp increase in credit loss reserves.

The banking sector posted strong gains last week, with Democratic wins in Georgia setting the stage for Congress and the Biden administration to support economic growth through additional stimulus. The yield curve widened while the 10-Year Treasury yield posted a 10-month high, promising higher margins on bank loans. However, strong demand is the key to higher prices for the sector, and it's anyone's guess how quickly we emerge from the pandemic.

Commercial banks passed the Federal Reserve's Second Round of Bank Stress Tests in December, allowing the institutions to resume stock purchases. This will enhance shareholder value and lift sentiment during the final stages of the pandemic, keeping a floor under the group, which is vulnerable to economic downturns. Taken together with improving fourth quarter credit losses, Citigroup could find its way back to January 2020's pre-COVID peak.

Wall Street consensus on Citigroup stock has improved considerably, with a "Strong Buy" rating based upon 14 "Buy," 3 "Hold," and 0 "Sell" recommendations. Price targets currently range from a low of $45 to a Street-high $111, while the stock is set to open Monday's session about $5 below the median $70 target. Additional upside into that level is possible with this configuration, but further gains may have to wait for the light at the end of the COVID tunnel.

Citigroup Weekly Chart (2011 – 2021)

The stock crashed during the 2008 economic collapse, dropping to an all-time low and prompting a 1-for10 reverse stock split in 2011, which accounts for the wide ranges displayed on long-term price charts. The uptick after the 2008 low stalled at a post-split $54.30 in September 2009, marking a resistance level that remained intact into a breakout following the 2016 presidential election.

The rally stalled at a nine-year high just above $80 in January 2018, when President Trump fired the first shot in the trade war, yielding a broad trading range with support in the upper $40s. A January 2020 breakout attempt failed, while the pandemic decline sliced though range support in March. Price action recouped that trading floor in November, potentially limiting pullbacks in coming months.

The weekly stochastic oscillator has lifted into the most extreme overbought reading since 2019, while price has mounted the .618 Fibonacci selloff retracement and 200-day exponential moving average (EMA). In turn, this suggests that the short-term uptick will reach the .786 retracement level in the low $70s before a large-scale selling wave sets into motion. That looks about right, given mixed catalysts as we grind through the first quarter of 2021.

The Bottom Line

Citigroup reports fourth quarter 2020 results ahead of Friday's opening bell, with hopes that loan delinquencies are dropping back to historical means.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.