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Is Citigroup Worth Buying Now?

12/15/10 02:04:44 PM
by Koos van der Merwe

From a high of $57 in 2006, Citigroup fell to a low of $1.22 by March 2009. After that ...

Security:   N/A
Position:   Hold

We all know what happened with Citigroup. What will happen? The company is dismantling itself, selling off parts of itself all over the world to meet its liabilities and pay back the loan made by the Federal Reserve. The past week saw the US government sell its Citigroup shares on the open market at a very nice profit, and the share price rose even higher. So what now?

Graphic provided by: AdvancedGET.
Figure 1 is a weekly chart and shows how the price fell from $57.23 in December 2006 to a low of $1.10 by March 2009. Its present rise to $4.77 does not look very glamorous, but if you had placed your trust in management, a hard thing to do after the dramatic collapse, you would have reaped a handsome 400% profit. The Chapter 11 bankruptcy of Ambak Financial Group, where shareholders lost everything, is something that could have occurred to Citigroup.

Graphic provided by: OmniTrader.
Figure 2 shows how the price has moved up to present levels from a low of $3.61 in August 2010 to the current high of $4.77. The vote line gave buy signals that were profitable, with the Vervoort trailing stop-loss taking you out of the share, thus allowing you to score well. Although the vote line is suggesting that the share is still a hold, I would be inclined to be a bit nervous, especially with the stochastic relative strength index (RSI) indicator at overbought levels. The ergodic oscillator has not yet given a sell signal, but it does look close to it, and the price is far too close to the upper trendline.

If you have the share, hold it, and wait for the sell signal. I would, however, not be a buyer at present levels.

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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