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Is It Time To Buy Citigroup?

03/25/10 08:28:44 AM
by Koos van der Merwe

Citigroup has been receiving a great deal of publicity recently. Is it time?

Security:   C
Position:   Accumulate

Vikram S. Pandit, chief executive of Citigroup, said recently that he believed the house of Citigroup was finally in order. For the last two years, he has tried, with mixed success, to clean up the financial mess. His task? After losses of billions of dollars, he has to deliver profits in 2010 or risk losing his job.

We all know the story of Citigroup, in that it suffered more than most of the large banks from the financial crises because management was lax, most of their losses stemming from bad loans and investments. His job is not an easy one nor a popular one, but the feeling in the market is that he is succeeding in putting the company on the right tracks. What do the charts say?

Graphic provided by: AdvancedGET.
Figure 1 is a weekly chart, and shows how the price dropped from a high of $57.02 in December 2006 to a low of $0.97 by March 2009. Since that date, the share has slowly risen in value to the price shown on the chart of $4.14, a nice return of more than 400% if you were bold enough to take the plunge, and the volume shows that many did, with volume rising on buys and falling when the price fell, with a strong buy signal. Note too that the relative strength index (RSI) is rising, and has not reached overbought levels.

With the Dow Jones Industrial Average (DJIA) in a bull trend, constructing a diversified portfolio on any and every correction in the market, would you add Citigroup to your picks? Weekly charts say yes, with a possible target of $22.18 (38.2% retracement), should the price rise above the resistance line at the $7.00 level. The daily chart shown in Figure 2 will tell you when to buy.

Graphic provided by: OmniTrader.
Figure 2, an Omnitrader chart, shows that the price has risen from a low of $3.11 in February to a high of $4.20 over a period of 18 trading days. Since then, it appears to be forming a consolidation triangle with a target of $4.92 (4.20 - 3.11 = 1.09 + 3.83 = 4.92):

a. The vote line, based on a number of strategies that I use, have given a preliminary buy signal.
b. The moving average convergence/divergence (MACD) of the volume is still negative, but suggesting a future buy signal soon.
c. The stochastic RSI cycle, using an eight-period, has given a buy signal.
d. Volume as the price weakened also fell.

There is no doubt in my mind that Citigroup is a company that should have a place in a portfolio. Whether you buy now or wait until the resistance line of $4.20 is broken depends on the amount of risk you are prepared to take. Recovery will be slow, and the highs of $57 may take many years to reach, but management is determined that recovery may be quicker than we think.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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Date: 03/26/10Rank: 4Comment: 

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