Citigroup Reports Earnings Below a 'Death Cross'

Citigroup Inc. (C), the fourth largest of the four "too big to fail" money center banks, has been trading sideways to down since setting its multi-year intraday high of $80.70 on Jan. 29. This has the stock down 8.3% year to date and in correction territory at 15.5% below this high. The stock is 6% above its 2018 low of $64.38 set on June 26. Citigroup reports quarterly earnings at around 8:00 a.m. during pre-market hours on Friday, July 13. Analysts expect Citigroup to report earnings per share between $1.56 and $1.62.

The consensus is that the big banks will show strong year-over-year growth even though the finance sector has been underperforming the market. The level of interest rates and the flattening of the Two-Year to Ten-Year note spread serve as an economic warning. A problem virtually ignored by Wall Street is the Fed policy to unwind its balance sheet. As of July, the unwinding process has risen to $40 billion per month. In October, it jumps to $50 billion per month, which could last until the end of 2020. This should eventually hurt banks and hence the economy and the stock market. (For more on this topic, see: How Will the Fed Reduce its Balance Sheet?)

The daily chart for Citigroup

Citigroup stock has been trading below a "death cross" since April 26, when the 50-day simple moving average fell below the 200-day simple moving average, indicating that lower prices lie ahead. These averages are now $68.36 and $72.42, respectively. After trading as low as $64.38 on June 26, the stock has rebounded to its monthly pivot of $68.76, which is the lowest of the three horizontal lines shown on the chart above. Holding this key level indicates potential strength to my semiannual and annual pivots of $72.47 and $73.43, respectively.

The weekly chart for Citigroup

The weekly chart for Citigroup is positive, with the stock above its five-week modified moving average of $68.00. The 200-week simple moving average of $57.26 is below the market price, and it also constitutes the "reversion to the mean," last tested during the week of Nov. 4, 2016, when the average was $49.25. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 28.23 this week, up from 25.29 on July 6.         

Given these charts and analysis, investors should buy Citigroup shares on weakness to the 200-week simple moving average of $57.26 and reduce holdings on strength to my semiannual and annual risky levels of $72.47 and $73.43, respectively. My monthly pivot is a magnet at $68.76. (See also: Citigroup's Stock May Plunge 8% Further.)