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Citigroup (NYSE: C) has had a heck of a run over the last 3 ½ months. Citigroup shares gained more than 38% from the February low to the high on Thursday. As impressive as that run has been, a number of factors lead me to believe that Citi will fall over the coming weeks.
First, the daily chart shows a downward sloped trend line that connects the highs from the past year. That trend line is just overhead at the $48.50 level. We also see potential resistance in the $47 range. This area acted as support last summer and in the first quarter of 2015.
Many times we see former support become resistance when a stock attempts to rally back. There is an upward sloped trend line that has formed from the recent rally, but it doesn’t have the same history as the longer-term trend line.
Looking at the daily oscillators, we see that the stochastic readings performed a bearish crossover on Friday. The 10-day RSI peaked in the 63-65 area, which has been the case on several occasions over the past year. These indicators are pointing to a move lower over the short term.
Looking at the weekly chart, we see the previously mentioned trend line and we see how the stock has performed at the $47 area over the past 3 ½ years. It has danced around the area on several occasions.
The weekly stochastic readings have just recently moved out of overbought territory, while the 10-week RSI is just barely above the 50 level.
Yet another reason that I am bearish on Citigroup shares over the coming weeks and months is the sentiment toward the stock. Since its peak last July, the stock is down 22.5% and yet investors and analysts are extremely bullish toward the stock. The short interest ratio is a meager 1.51. There are 29 analysts following the stock and 23 have it rated as a “buy,” while the other six have it rated as a “hold.”
One of the things that has helped boost Citigroup shares in recent months was a positive earnings surprise back in mid-April. The company was expected to earn $1.06 per share and instead managed to earn $1.10. While that isn’t a bad thing, the last four quarters’ of earnings show $1.51 (Q2 ’15), $1.35 (Q3 ’15), $1.06 (Q4 ’15) and the most recent $1.10. Not exactly the type of trend in earnings that warrants such optimistic sentiment.
I would look to short the stock above the $46 level with a downside target of $37 at the very least. Should the stock move above its 52-week moving average, I would look to close out the short position.
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