Citigroup Faces Earnings Below Key Moving Averages

Citigroup Inc. (C) is the fourth largest of the four money center banks. This banking giant ended 2017 with assets of $1.387 trillion according to data from the FDIC. The huge bank controls 8% of the total assets in the banking system, which makes Citigroup "too big to fail." Citigroup reports quarterly earnings before the open on Friday, April 13, and the stock has been below its 50-day and 200-day simple moving averages of $73.50 and $72.13, respectively, since March 22. This will result in a "death cross" soon unless there is a positive reaction to earnings.

Analysts expect Citigroup to deliver earnings per share between $1.61 and $1.65 when it reports first quarter results on Friday. When the bank reported fourth quarter earnings on Jan. 16 and beat earnings estimates, this quarter assumed positive effects from the Tax Cut and Jobs Act. This positive earnings report was the catalyst for strength to the Jan. 29 high of $80.70. This is a warning that the positive effects to the new law were factored into the fourth quarter report.

For Friday’s report, the bulls are expecting improved trading revenues and the benefits from higher interest rates by the Federal Reserve. They are also counting on decent loan growth, which could be a stretch. The stock closed Wednesday at $69.89, down 6.1% year to date and in correction territory at 13.4% below its Jan. 29 high of $80.70. The stock is also 5% above its 2018 low of $66.55 set on April 2. (See also: How Citigroup Makes Its Money.)

The daily chart for Citigroup

Daily technical chart showing the performance of Citigroup Inc. (C) stock
Courtesy of MetaStock Xenith

Citigroup stock has been trading below its 50-day and 200-day simple moving averages since March 22. These averages are converging at $73.50 and $72.13, respectively, and if the 50-day moving average declines below the 200-day, a "death cross" will be confirmed. This would indicate that lower prices lie ahead. The stock is well above its semiannual value level of $64.72 and below its annual and monthly risky levels of $73.43 and $76.69, respectively, shown as horizontal lines shown on the chart.

[If you'd like to learn more about using moving averages to analyze stock charts, check out Chapter 2 of the Technical Analysis course on the Investopedia Academy]

The weekly chart for Citigroup

Weekly technical chart showing the performance of Citigroup Inc. (C) stock
Courtesy of MetaStock Xenith

The weekly chart for Citigroup is negative, with the stock below its five-week modified moving average of $71.43. The 12 x 3 x 3 weekly slow stochastic reading its projected to decline to 18.83 this week, falling below the oversold threshold of 20.00.

Given these charts and analysis, investors should buy Citigroup shares on weakness to my semiannual value level of $64.72 and reduce holdings on strength to my annual, monthly and quarterly risky levels of $73.43, $76.69 and $83.23, respectively. (For more, see: Citi, Wells’ Underperformance Is Opportunity: UBS.)

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