Citigroup Inc. (C) shares ended 2018 with a "key reversal" day on Dec. 26. This occurred when the stock set its 52-week low of $48.42 and then closed that day at $51.44, above the Dec. 24 high of $50.24. This set the stage for significant gains as 2019 began.
The key to strength for Citigroup stock was closing above its annual pivot at $55.32 on Jan. 8. The stock set its 2019 high of $73.08 on July 24. This high was above its second half pivot at $67.85, which has been a magnet between Aug. 1 and Oct. 10. With the July 24 high marking the upper end of the trading range, the low end of the range is the quarterly value level at $61.27.
Fundamentally, Citigroup stock is reasonably priced with a P/E ratio of 9.73 and a dividend yield of 2.97%, according to Macrotrends. The fourth biggest of the four "too big to fail" money center banks is expected to post earnings per share (EPS) between $1.96 and $2.00 when it reports results before the opening bell on Tuesday, Oct. 15. The bank has beaten EPS estimates in 18 consecutive quarters.
In the longer term, Citigroup stock is consolidating a bear market decline of 35% from its Sep. 21, 2018, high of $75.24 to its Dec. 26 low of $48.42. The stock closed Friday, Oct. 11, at $70.10, up 34.7% year to date and in bull market territory at 44.8% above the low.
The daily chart for Citigroup
The daily chart for Citigroup clearly shows the trading range between $61 and $73, with the stock approaching the high end of the range in front of this Tuesday's earnings report. The Dec. 31 close of $52.06 was an important input into my proprietary analytics, and the annual pivot is below the range at $55.32. The mid-year close of $70.03 was also an input to my analytics and resulted in a semiannual pivot for the second half of 2019 at $67.85. The third quarter close of $69.08 was another input to my analytics, and the results include a fourth quarter value level at $61.27 and a pivot for October at $69.48.
The weekly chart for Citigroup
The weekly chart for Citigroup is positive, with the stock above its five-week modified moving average of $68.33. The stock is above its 200-week simple moving average, or "reversion to the mean," at $61.44. Citigroup tested its "reversion to the mean" during the week of Aug. 16, which was a buying opportunity at $60.89.
The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 62.88 this week, up from 59.84 on Oct. 4. At the December low, this reading was 8.13, below the 10.00 threshold as a stock that was "too cheap to ignore," which was also a buy signal.
Trading strategy: Buy Citigroup shares on weakness to the quarterly value level at $61.27 and reduce holdings on strength to the July 24 high at $73.08. The stock's monthly and semiannual pivots are $69.48 and $67.85, respectively.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the close on Dec. 31, 2018. The original annual level remains in play. The close at the end of June 2019 established new monthly, quarterly, and semiannual levels. The semiannual level for the second half of 2019 remains in play. The quarterly level changes after the end of each quarter, so the close on Sept. 30 established the level for the fourth quarter. The close on Sept. 30 also established the monthly level for October, as monthly levels change at the end of each month.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a reading below 10.00 as "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.