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Citigroup Stock Moves Higher After MACD Buy Signal

By: Wyatt Investment Research
Posted: 4/16/2014 7:22:00 AM
Referenced Stocks: C

Citigroup ( C )  experienced a sharp decline when the Federal Reserve declared that the financial giant had failed its stress test in late March. That meant that the Fed wouldn't allow the bank to increase its dividend or share buyback program.  During the past week, Citigroup has made a significant comeback after beating earnings estimates.

Citigroup Earnings

Citigroup's first-quarter earnings came in better than expected, helped by declines in expenses and provisions for bad loans. The earnings improved even as revenue from their mortgage refinancing business and bond trading fell.  The company reported a profit of $4.1 billion in the first quarter, an increase of 2.5%. Earnings per share were $1.30 per share, exceeding analyst estimates of $1.14 per share.

Citigroup also got a boost from improving results in its "bad bank" referred to as the Citi Holdings unit.  This subsidiary is selling off assets such as mortgages that soured in the financial crisis. Losses at Citi Holdings fell to $284 million from $804 million in the same period a year earlier.

Abandon Baby

Prior to Citigroup's earnings release, a doji candlestick pattern was formed which led to a powerful reversal in the price of the stock.  A doji pattern usually is part of a reversal pattern, and forms as the open and the closing price of a stock on a given day are equal.  This generally signals indecision by market participants.

When the closing price of the stock on the day prior to the doji is down and the stock price on the day after the doji is up, the 3-day pattern is referred to as a bullish abandoned baby.

citigroup-stock-chart

The first gap down prior to the doji pattern signals that selling pressure remains strong. However, selling pressure eases and the security closes at or near the open, creating a doji. Following the doji, the gap up and long white candlestick indicate strong buying pressure and the reversal is complete. Further bullish confirmation is not required for this pattern.

Citigroup Stock Momentum

Momentum on Citigroup is robust as the MACD (moving average convergence divergence) index generated a buy signal.  This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.  The MACD index moved from negative to positive territory which confirms the MACD crossover buy signal.

Support and Resistance

Shares of Citigroup closed on Tuesday above the 20-day moving average which has now turned from former resistance into short term support.  Target support for the stock is now seen near a downward sloping trend line which comes in near $49.50 per share.

Trading Citigroup Stock

Investors looking to take advantage of the upward momentum in Citigroup could purchase the stock near the 20-day moving average of $48.05. I recommend using the horzintal trend line on the daily chart that comes in near $46.50 as a level to place a stop.  This level coincides with the abandon baby gap, and should hold if the price of the stock moves lower.

Investors could consider taking profits near $51, which is the highs made in March or $55, which was the high made in January. That would transalate into a quick profit of 15%.

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