Citigroup Inc. (C) is the fourth largest of the four "too big to fail" money center banks. The stock closed Thursday, April 12, at $65.91, up 26.6% year to date and in bull market territory at 36.1% above its Dec. 26 low of $48.42. Shares of the financial giant are consolidating a longer-term bear market and remain in correction territory at 18.3% below the high of $80.70 posted on Jan. 29, 2018.
According to the Federal Deposit Insurance Corporation (FDIC) Quarterly Banking Profile for the fourth quarter, Citibank N.A. had $1.407 trillion in total assets. The FDIC shows that this is down from $1.415 trillion in the third quarter of 2018. This is a sign that Citigroup may become more risk averse. The stock is reasonably priced with a P/E ratio of 9.85 and a dividend yield of 2.75%, according to Macrotrends.
Analysts expect Citigroup to post earnings per share (EPS) of $1.78 when the company reports results before the opening bell on Monday, April 15. The banking giant is putting a winning streak on the line of 16 consecutive earnings reports in which it has beaten EPS estimates. Wall Street has differing opinions – some say that this bank is the only one to buy, while others are concerned that Citigroup is unable to keep its core businesses growing. Let's see what the charts say!
The daily chart for Citigroup
Citigroup stock traded as high as $75.24 on Sept. 21, and that day was a negative "key reversal," as the close of $73.98 was below the Sept. 20 low of $74.26. The stock declined by a bear market 35% to its Dec. 26 low of $48.42. Dec. 26 was a positive "key reversal," as the close of $51.44 was above the Dec. 24 high of $50.25. This indicated that a tradeable rally would follow.
The close of $52.06 on Dec. 31 was an important input to my proprietary analytics and resulted in an annual value level at $55.32 and a semiannual pivot at $61.70, which was a magnet between Jan. 15 and March 28. Investors could have bought the stock at both these levels to take advantage of a positive earnings report released on Jan. 14. The close of $62.22 on March 29 was another key input to my analytics. The results included a monthly value level at $56.59 and a quarterly risky level at $72.78. The stock is above its 200-day simple moving average at $65.43.
The weekly chart for Citigroup
The weekly chart for Citigroup will be positive given a close this week above its five-week modified moving average of $64.03. The stock has been above its 200-week simple moving average, or "reversion to the mean," at $59.66 since the week of Jan. 18. The 12 x 3 x 3 weekly slow stochastic reading its projected to rise to 78.11 this week, up from 77.01 on April 5. Note that, at the end of 2018, this reading was 8.13, below the 10.00 threshold that indicates a stock is "too cheap to ignore."
Trading strategy: Buy Citigroup shares on weakness to the 200-day simple moving average at $65.43 and to the 200-week simple moving average at 59.66, and reduce holdings on strength to the quarterly risky level at $72.78.
How to use my value levels and risky levels: Value levels and risky levels are based on the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based on the close on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March.
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 already. 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.