Citigroup, Inc. (C) kicks off first-quarter earnings season on Thursday, April 13, with high expectations following a post-election rally that lifted the banking giant to an 8-year high in the low-60s. However, it’s still trading more than 500-points below the 2007 all-time high, thanks to a one-for-ten reverse stock split needed to stabilize its precarious financial position after the 2008 economic collapse.
Shareholder lawsuits and government fines kept a lid on the stock for many years, but those headwinds have mostly passed while the Trump administration promises tax reform and deregulation that could translate into much higher industry profits. Also, Chairperson Janet L. Yellen and the Federal Reserve have finally transitioned into a new tightening cycle, with steepening spreads also having the power to add to bottom lines and share prices.
C Long-Term Chart (1993-2017)
The 1987 crash marked an important inflection point, dropping the stock to a multi-year low at $14, ahead of an uptrend that gathered force in the 1990s. The stock split six times into the new millennium, topping out above $500 after a deep pullback during the 1998 Asian contagion. It turned sharply lower through most of the Dot-com bear market, finding support at $228 in July 2002 and gaining ground throughout the mid-decade bull market.
The stock finally reached resistance at the $2000 high in December 2006 and broke out, but momentum failed to develop, yielding an all-time high at $570, less than 20-points above the prior high. It held up well into October 2007 and broke down, entering a decline that accelerated during the 2008 economic collapse. The downtrend broke a 10-year double top pattern at the same time, establishing new long-term resistance just above $200.
The dust finally settled after the stock posted a multi-decade low at $9.70 in March 2009, giving way to a two-legged bounce that stalled near $50 just six months later. That recovery peak marked a substantial barrier that yielded failed breakout attempts in 2010, 2011, 2013, 2014 and 2015. A sixth attempt beginning in late 2016 is still underway as we head into the second quarter of 2017.
C Short-Term Chart (2015–2017)
A July 2015 breakout stretched the trading range up to $61, ahead of a decline that triggered a failure just one month later. A bounce off the mid-30s in February 2016 attracted sizable buying interest into November, with the presidential election triggering a vertical advance that stalled at 2015 resistance. That level has now been in play for four months while completing the next stage of a possible cup and handle breakout pattern (blue line).
On Balance Volume (OBV) peaked in 2013 and posted lower highs in 2014, 2015 and 2016. The highs are tightly clustered, lowering the bearish divergence but confirming the stock hasn’t mounted 2009 and 2010 resistance unlike the majority of its commercial banking rivals. Also, the indicator shows active selling pressure since the December peak, increasing the sponsorship needed for a legitimate breakout.
The four-month sideways pattern is sitting on top of the 2009 high (black line), carving rising lows and horizontal highs that may complete an ascending triangle. The next selloff could tell the tale because the stock will need to hold above $56 to maintain the bullish pattern. In turn, that tells observant market players to watch the post-earnings reaction, which also has the power to trigger a historic breakout that opens the door to triple digits in coming years.
The Bottom Line
Citigroup has underperformed its rivals since the November election but has lifted into a good position to break multi-year resistance and head into a sustained uptrend. A positive reaction to this week’s earnings report could generate that breakout while underpinning banking sector sentiment.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>