Citigroup Inc. (C) is the fourth largest of the four "too big to fail" money center banks. The stock closed Tuesday, Jan. 8, at $55.46, up 6.5% so far in 2019 but still in bear market territory at 31.3% below its 2018 high of $80.70 set on Jan. 29, 2018. The stock is up 14.5% since its Christmas low of $48.42 set on Dec. 26.
Citigroup reports quarterly earnings before the opening bell on Jan. 14 and is expected to post earnings per share of $1.61. Fundamentally, this huge bank is cheap, with a P/E ratio of 8.80 and a dividend yield of 3.24%, according to Macrotrends. The banking giant has beaten earnings per share estimates in 15 consecutive quarters, but that string of success still leaves the stock mired in a bear market.
A major reason for concern for the banking system is the unwinding of the Federal Reserve balance sheet. As of Jan. 2, the Federal Reserve balance sheet was marked at $4.058 trillion, down $442 billion since the end of September 2017, when it was $4.5 trillion. The Fed drained $30 billion from the balance sheet in December, when $50 billion was expected. Last Friday, Federal Reserve Chair Jerome Powell indicated that the Fed would slow down the unwinding of the balance sheet if he felt it was a factor causing problems in financial markets. This move to slow the drain in December shows this concern!
How can you trust comments from Fed Chair Powell? During the press conference following the FOMC meeting and rate rise on Dec. 19, Powell stated that the balance sheet reduction has been smooth. He indicated that the runoff is small and not causing significant problems. How could he have been so wrong? Now the market does not have any guidance from the Fed regarding the pace of the unwinding of the balance sheet and on whether there will be any rate hikes in 2019, despite Powell's comment that there would be two.
The daily chart for Citigroup
Citigroup has been trading below a "death cross" since April 26, when the 50-day simple moving average (SMA) fell below the 200-day SMA, indicating that lower prices lay ahead. These averages are now at $60.11 and $67.32, respectively. Between May 10 and Oct. 10, investors had numerous opportunities to reduce holdings above the 200-day SMA as it declined from above $71.50 a share. The break below the "death cross" began on Oct. 10 as the bear market gained downside momentum to its Dec. 26 low of $48.43. Today, the stock is struggling at my annual pivot at $55.32, which is a chart horizontal line.
At the end of a year, I had a new annual value level or risky level for the entire New Year. This level is based upon the past nine years of annual closes. I assume that nine years of closes are enough to assume that all possible bullish and bearish reactions to share price volatility have been factored into the charts and the key levels that I provide. When a value level or risky level is violated, it becomes a pivot for the remainder of that time horizon or a magnet that is almost always tested at least once before the end of the horizon.
The weekly chart for Citigroup
The weekly chart for Citigroup is negative but oversold, with the stock below its five-week modified moving average of $57.33. The stock is below its 200-week simple moving average of $59.00, which is also its "reversion to the mean" last crossed during the week of Dec. 7. The 12 x 3 x 3 weekly slow stochastic reading its projected to rise to 15.61 this week, up from 10.46 on Jan. 4, with both levels below the oversold threshold of 20.00.
Given these charts and analysis, investors should buy Citigroup shares at my annual pivot of $55.32 and reduce holdings on strength to the 200-week SMA at $59.00.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.