late Wednesday, its share price took quite a tumble in the after-hours market, falling some 10%. The offering price was set at $3.15, and shares traded as low as $3.19 in the late session. For someone who has been waiting on better prices to buy back into financials, this pricing looks to work and this trader is a buyer at those prices. Here's why.
On the monthly chart, we have volume at the highs which means that prices will eventually find their way back up to the $5.43 level at the worst. With the secondary and current price point of $3.15, that amounts to a 75% gain assuming it comes to fruition.
The problem will be, of course, how long it takes. Let's assume it takes two years. That is still much more than you will probably make in the bulk of any other trades you might do in the interim. So the question should be, if that's the reward, then what kind of risk do I have to take?
Look to the intermediate and short-term time frames to answer that question because they actually line up at almost exactly the same price point.
On the intermediate-term weekly chart, do you see the high volume week that anchors the higher buy zone? That price point is $3.11, and volume on a weekly basis comes in at almost 7 billion shares. Odds are that we will test that price point this week. Even with the secondary, it appears that volume won't expand sufficiently to take out that price point.
On the daily chart, we see the extension of an AB=CD pattern that terminates at -- you guessed it -- the same area of $3.12.
Thus on a long, intermediate, and short-term basis, we have all time frames pointing to this $3.11-$3.15 area as to where prices should turn. Usually a technician is searching for a couple of indicators that line up, but rarely does he find a stock in which all three time frames show the same probable turning point.
Now it may turn out that volume swells excessively when the $3.11 test occurs, and that after a bounce may cause Citigroup to retrace even farther to the second buy zone shown on the weekly chart. Again, if volume looks right, you would want to be a heavy buyer into that zone especially if the downtrend at that point was
It isn't all that often that you get a risk-to-reward trade that over an intermediate to long-term time frame, is as promising as this. I know that Citigroup has issues. Everyone is aware of that by now. But unless Ron Paul is able to open the
books and eventually shuts the Fed down, mega-banks like Citigroup are going to continue to print money hand over fist until the Fed eventually rights their books. That clearly is what the central bank intends to do, so you might as well be a part of that fix.
So until next time, keep trading the charts!
Shares of Citigroup closed Thursday at $3.22, down 23 cents.
At the time of publication, Little was long Citigroup.
L.A. Little is an author, professional trader and money manager who writes daily on
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