Citigroup Fails After Gap

04/26/06 09:25:26 AM

by Arthur Hill

Citigroup remains in an uptrend but recently failed to hold a gap. This could signal the beginning of the end of the trend.

Security: C
Position: Hold

First, let's look at the price chart and the current uptrend (Figure 1). The stock reversed the downtrend by filling a gap in February (green circle). The gap and long black candlestick in early February represented a selling climax of sorts, and filling the gap turned it into an exhaustion gap. The stock has trended higher the last few months within a rising price channel, and the lower trendline is being touched for the third time. A break below this trendline and the late March low (47.2) would reverse the current uptrend.

FIGURE 1: CITIGROUP. Citi reversed its downtrend by filling a gap in February (green circle), which, along with a black candlestick in early February represented a selling climax of sorts.

Graphic provided by: MetaStock.

Graphic provided by: MS QuoteCenter.

Citibank gapped higher on April 17 and formed a doji on the day. The doji (which looks like "+") signals indecision. The inability to follow through after the gap showed buyer reluctance. A strong stock should continue higher after the gap. Instead, the stock stalled for a few days (red oval) and moved lower the last three days. This decline over the last three days filled the gap and is a negative indication.

I am using the Aroon indicators to identify and forecast a trend change. First, let's look at the prior trend change in February–March. Aroon up (green) moved above Aroon down (red) in late February and again in early March. It took two tries for Aroon up to move above and stay above Aroon down (green arrows). A similar situation is happening now as Aroon red moves above Aroon green for the second time (red arrows). The first move did not hold for long, but the second move looks stronger (blue oval) because Aroon down moved above its prior high and Aroon up moved below its prior low. Downside pressure is growing, and a break below 47.2 would be the proverbial straw that breaks the camel's back.

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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Citigroup Fails After Gap

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