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Citigroup (NYSE: C) appeared on the bullish scan the other night and the main reason it made the list was that the stock was oversold or very close to it. You can see the blue circle at the bottom of the chart that shows how the stochastic readings just made a bullish crossover. While the bullish signal may have brought the stock to my attention, it is what I saw on the weekly chart that caused me to write about it.
Looking at the weekly chart, there are several items that give me reason to believe that Citigroup is heading lower. First of all, the 13-week moving average just made a bearish crossover of the 52-week moving average. Sure it did the same thing in the spring of 2012, but this particular crossover is looking more like the one that occurred back in the summer of 2011. I have circled the 2011 pattern and the current pattern on the chart below.
If I went back further on the chart, you would see that the stock had been on a long bullish run that started when the bear market ended in March 2009. The bearish crossover of the moving averages came at a time when the weekly stochastic readings weren’t even at the 50 level and we are seeing the same thing again.
During the bearish run in 2011, the stock dropped from a peak of $51.33 to a low of $21.34 for a loss of 58.4%. Even if you waited until after the bearish crossover of the moving averages, the stock still fell over 40%. If we see a similar move this time, we would be looking at a decline from the high down to the $23.50 level. That would be a decline of approximately 50% from the present price. While that might be a little too much to ask, I do see a significant decline for the stock.
The chart tells half the story and the sentiment tells the other half. Citigroup stock has a low short interest ratio at 1.3 and almost 75% of the analysts rank the stock as a “buy”. The only sentiment indicator that is remotely neutral is the put/call ratio and it is still in lower 37% of readings for the past year.
Citi hasn’t been helping their cause with their fundamental performance either. Over the last three years, the company has averaged EPS growth of only 9% and for the last three quarters the growth rate has been a paltry 7%. The sales growth is even worse as sales declined by 4% last quarter and have averaged -6% over the last three years.
I would look to short Citigroup at a price above $45 and set a target of at least $38 (the intermediate high in March 2012). I would also use a weekly close above the 52-week moving average as a stop-loss point.
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