Chart Of The Day: Citigroup Stock Is Breaking Down
Investing.com | Nov 17, 2021 09:28AM ET
On Tuesday, while the broader market, including all four US major indices and even financial sector peers all gained, shares of Citigroup (NYSE:C) slumped.
The stock lost almost 1.5% yesterday, to close at $67.74. It was the equity's second straight day of losses. As well, C closed $12.55 lower than its 52-week high ($80.29), which it hit on June 2, for a 16% loss in value since that time.
It's difficult to understand why shares of a New York City-based global financial services company would decline amid speculation the Fed will raise rates—the bread and butter of lenders—more quickly than expected, pressured by inflation. But other big banks fell too.
Still, Citi's stock lagged. While Wells Fargo (NYSE:WFC) shed almost as much as Citi, with a 1.4% selloff, JPMorgan Chase (NYSE:JPM) dropped by half that, with just a 0.7% retreat. And Bank of America (NYSE:BAC) rose almost 0.1%.
It's not clear why financials tumbled, but perhaps they were swept in by the retreating Reflation Trade over the last few days, as tech growth shares led markets. Or possibly this paradigm is signaling that investors are losing faith in the economic recovery.
Whatever the fundamental case, technicals are providing a picture of weakness.
The stock is on the cusp of completing an H&S continuation pattern. It may have completed a rising flag yesterday, bearish after a $4.80 drop within just six sessions.
Note how the volume rose alongside the creation of the flagpole—the sharp move before the stock began to range. Then, volume dried up amid the flag's body formation. Finally, the breakout was accompanied by a jump in volume. Volume indicates where participation is, and since Oct. 22, it has been with the bears.
The 50 DMA crossed below the 200 DMA, triggering a Death Cross, a nasty technical indicator, suggesting continued weakening.
The Relative Strength Index fell below its rising trendline, showing a momentum breakdown with the overall rally since July 19. The RSI attempted to climb back above the line but failed. This momentum indicator is famous for providing early calls for breakouts, suggesting our H&S will complete.
We measure an H&S by its height, at its smallest point. Therefore, we measure the pattern from its $74.64 head to the breakout of its right shoulder, by our estimate at around $67.64, forming a $7 minimum objective to about $60.
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Conservative traders should wait for a downside breakout to $65, with at least a 3-day filter. Then, they'd wait for a return move to retest the resistance.
Moderate traders would wait for penetration to $66 with a two-day filter in order to avoid a bear trap.
Aggressive traders could go short at will, provided they accept the higher risk that goes with moving before the rest of the market, with less confirmation. Money management is crucial. Here's an example:
Trade Sample
- Entry: $68
- Stop-Loss: $70
- Risk: $2
- Target: $60
- Reward: $8
- Risk:Reward Ratio: 1:4
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