Thursday, July 21, 2011

Citigroup’s Technical Pattern Indicates Upside Potential

A review of Citigroup’s (C) closing stock prices for the past 24 months reveals an interesting pattern. In a two month period from 12/17/2009 through 2/12/2010 Citigroup tested a floor price of $31.49 five times. Closing prices were $31.99 on 12/17/2009, $31.49 on 1/26/2010, $31.79 on 2/4/2010, $31.49 on 2/8/2010, and $31.79 on 2/12/2010. Within three months of its fifth test of its low closing price, Citigroup rose to $49.49 on 4/20/2010.

The stock then nosedived and within a month it had fallen to a low of $36.29 on 5/20/2010. That closing low would then be tested four times which were on 6/7/2010 at $36.39, on 6/29/2010 at $37.29, on 8/26/2010 at $36.59, and on 6/8/2011 at $36.81. Like during the earlier period, Citigroup has withstood five tests of its most recent low.

If Citigroup responds to this fifth test of its low as it did the last time then investors can expect C to challenge the $50 price level within the next several months. On four occasions during the past two years Citigroup has approached or exceeded that price. On 8/28/2009 it closed at $52.29, on 10/14/2009 it reached $49.99, on 4/20/2010 it hit $49.69, and on 1/14/2011 it closed at $51.29.

This data strongly suggests that Citigroup’s current stock price offers much more upside potential than downside risk.

Disclosure: I am long Citigroup common stock

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