Citigroup Weighs On S&P 500

08/12/03 01:19:34 PM

by Arthur Hill

The chart for Citigroup (C) is developing a short-term reversal pattern.

Security: C
Position: Sell

Representing 83 stocks and a market cap of almost $2 billion, the financial sector is the single largest sector in the S&P 500 (market cap of $9 billion). As such, the relative health of this sector is vital to the performance of the S&P 500. Within the financial sector, Citigroup (C) is a leading player and potential weakness in this stock could foreshadow further weakness in the S&P 500. There are a number of warning signs on the actual price chart and among various indicators.

From mid-March to mid-July, the stock advanced from the low 30s to the upper 40s. During this time frame, momentum was strong, relative performance robust and money flows bullish. However, the stock formed an exhaustion gap in mid-July (gray arrow) and broke trendline support with a sharp decline. Exhaustion gaps occur after an extended move and gap in the direction of the underlying trend. As long as the gap holds, it is considered a continuation or common gap. However, should that gap fail and be filled after a few days, it would be considered an exhaustion gap and short-term reversal pattern.

Figure 1: Daily chart for Citigroup (C).

Graphic provided by: MetaStock.

Key indicators have already weakened and point to an impending support break. RSI formed a bearish divergence in June/July and moved below 50 in early August (red arrow). Similarly, Chaikin money flow formed a bearish divergence and moved into negative territory. Even though the stock held support around 42, Chaikin money flow moved to new lows in early August. Confirmation from these two different indicators further validates the bearish case.

The stock found support just above 42, but the small advance above 44 looks feeble and further weakness below 42 would project a move to the upper 30s. The April/May consolidation marks a logical spot for support around 38. In addition, this level is confirmed by the 50% and 62% retracement marks. Considering the advance over the last few months (30 to 48), a 50-62% retracement could be quite normal.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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