Citigroup Inc. (C) shares sliced and diced bulls and bears after the bank beat top- and bottom-line second quarter estimates on Monday, declining nearly 3% at the opening bell and recovering those losses ahead of the lunch hour. The whipsaw indicates that sidelined investors used the opportunity to buy the stock, placing it in a good position to add to gains during this week's commercial bank earnings flood.
Citigroup stock rallied into the May high ahead of the quarterly confessional and could now break out, heading into stronger resistance at the October 2018 high in the mid-$70s. Unfortunately for bulls, that price level could mark the final uptick for this recovery effort because trade wars, weak capital spending, and a dovish Fed are likely to weigh on the commercial banking sector in the coming months.
JPMorgan Chase & Co. (JPM) is keeping a lid on sector gains in Tuesday's pre-market, dropping nearly 2% after beating expectations but lowering fiscal year guidance. Even so, yesterday's turnaround will be on the mind of traders after the opening bell, underpinned by a well-received report from The Goldman Sachs Group, Inc. (GS). Given these tailwinds, a JPMorgan bounce could send the entire group higher, lifting Citi shares to a 2019 high.
C Long-Term Chart (1995 – 2019)
<The long-term chart looks disastrous due to Citi's 2008 near death experience, which forced the company to issue a 1-for-10 reverse split in 2011.>
The stock broke out above the 1993 high at $77.06 in 1995, entering a historic trend advance that posted three stock splits into the 1998 high at $342. It cleared that level in 1999, stalling at $551 a year later, ahead of a complex decline that posted a two-year low in 2002. It performed well into mid-decade, lifting within 25 points of the prior peak in 2004 before easing into a sideways pattern that persisted into a 2006 breakout that posted an all-time high at $570 at year end.
The bank's shares fell a staggering 98% in the next 27 months, coming to rest in the single digits in March 2009. A recovery wave into September stalled in the $50s, marking a resistance level that wasn't cleared until a 2016 breakout. That uptick posted a nine-year high at $80.70 in January 2018, giving way to a deep slide into December's two-year low in the upper $40s, followed by a 2019 bounce that still hasn't reached the prior high
C Short-Term Chart (2016 – 2019)
A Fibonacci grid stretched across the 2018 downtrend confirms that the stock is still trading below the .786 Fibonacci sell-off retracement near $74. This level has marked resistance since a March 2018 breakdown, triggering five reversals in the past 16 months. A rally above the May 2019 high will initiate a sixth test while completing a 100% retracement into the September 2018 peak. Given this set-up, the long-term outlook would greatly improve with a buying spike above $75.
The on-balance volume (OBV) accumulation-distribution indicator posted a multi-year high in 2015 and entered a distribution phase that ended in the first quarter of 2016. OBV hasn't reached the prior peak in the past three and a half years, even though price has posted a series of new highs. In addition, the indicator posted a lower high in October 2017 while multiple tests have triggered reversals.
This weak retail and institutional sponsorship is evident throughout the banking sector, which was expected to blossom during the Trump administration. However, capital spending has failed to perk up despite massive tax cuts, while the Federal Reserve's reversal on interest rates has the potential to lower profits. Taken together with tough resistance levels, Citigroup stock may have topped out for this economic cycle.
The Bottom Line
Citigroup shares could trade into resistance in the mid-$70s in the coming sessions, but growing sector headwinds could end the recovery effort.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.