Citigroup - How to Trade the Stock After It Sets Multiyear High

Be patient and buy Citigroup on weakness to the 200-day simple moving average at $70.09 and reduce holdings on strength to its annual risky level at $94.40.
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Citigroup  (C) - Get Report beat fourth-quarter earnings estimates on strong profits in its fixed-income trading group. The stock opened Tuesday at $81.20 and traded as high as $82.63 in the first half hour of trading. That set a multiyear high with upside potential to its annual risky level at $94.40.

My call is to be patient and buy weakness to the 200-day simple moving average at $70.09 and reduce holdings on strength to its annual risky level at $94.40.

It appears that an easing to the Volcker rule which intended to limit proprietary trading now allows Citigroup's primary dealer group to take advantage of the volatility in the U.S. Treasury market as yields gradually rose during the fourth quarter.

Here’s the details of the earnings report from TheStreet.

At this morning high of $82.63, shares of Citigroup have risen 3.4% so far in 2020. The stock is also in bull market territory 70.7% above its low of $48.42 on Dec. 26, 2018.

Citigroup is one of the four money center banks considered “too big to fail.” At the end of the third quarter of 2019, FDIC data showed that the bank had $1.47 trillion in assets. 

The stock is reasonably priced with a price/earnings multiple of 10.87 with a dividend yield of 2.57%, according to Macrotrends. 

The earnings beat extends its quarterly winning streak to 20 consecutive quarters.

The Daily Chart for Citigroup

The Daily Chart For Citigroup

The Daily Chart For Citigroup

Courtesy of Refinitiv XENITH

The daily chart for Citigroup shows the formation of a “golden cross” on May 8 when the 50-day simple moving average moved above its 200-day simple moving average indicating that higher prices would follow. 

This buy signal gave investors the opportunity to buy the stock on weakness to the 200-day SMA at $65.50 on May 13. The chart shows numerous other buying opportunities at its 200-day SMA all the way to $65.12 on Oct. 3. This began a momentum run that continues with today’s new high of $82.63 as of 11:00 AM.

The horizontal lines are the first quarter value level at $63.22, the monthly value level for January at $72.31 and the semiannual pivot at $79.78, which is now a value level. 

The annual risky level at $94.40 is above the chart. The upside to this level is 14%. The downside risk to the 200-day SMA at $70.09 is 15%.

The Weekly Chart for Citigroup

The Weekly Chart For Citigroup

The Weekly Chart For Citigroup

Courtesy of Refinitiv XENITH

The weekly chart for Citigroup is positive but overbought with the stock above its five-week modified moving average of $78.27. 

The stock is above its 200-week simple moving average or “reversion to the mean” at $63.72. Citigroup tested its “reversion to the mean” during the week of Aug. 16 which was a buying opportunity at $60.89. 

The 12x3x3 weekly slow stochastic reading is projected to slip to 90.41 this week down from 91.29 on Jan. 10. Both readings are above the overbought threshold of 80.00 and above the 90.00 threshold making the stock in an “inflating parabolic bubble” formation. 

At the December 2018 low this reading was 8.13 below the 10.00 threshold as a stock “too cheap to ignore” which was a buy signal.

Trading Strategy: Buy weakness to the 200-day simple moving average at $70.09 and reduce holdings on strength to the annual risky level at $94.40. 

How to use my value levels and risky levels:

The closes on Dec. 31, 2019 were inputs to my proprietary analytics and resulted in new monthly, quarterly, semiannual and annual levels. Each uses the last nine closes in these time horizons.

New weekly levels are calculated after the end of each week. New monthly levels occur after the close of each month. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

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.

To capture share price volatility investors should buy 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 its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing 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.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.