Citigroup Inc. (C) has quietly lifted into a market and banking sector leadership role, charging to new highs while rivals struggle near price levels traded during the first sessions of 2017. Skillful management has underpinned this bullish behavior, squeezing out healthy profits through strong overseas growth while minimizing headwinds generated by low interest rates and the slump in local underwriting and debt demand.
The company reported solid first quarter results that caught skeptical Wall Street analysts by surprise, forcing a series of upgrades that have underpinned the second quarter rally. In many ways, Citigroup has the most to gain and the least to lose in the current environment after being pummeled during and after last decade’s economic collapse. A May 2011 one-for-ten reverse split now sets the historic high at $570, with plenty of running room above the current price in the mid-$60s. (See also: Citigroup at the Cusp of Historic Breakout.)
C Long-Term Chart (1993 – 2017)
The stock settled into a 1980s trading range between the low teens and upper $20s (after regular and reverse splits) and broke out in 1992, entering a strong uptrend that unfolded in an Elliot five-wave rally pattern into the 2000 high at $551. It split seven times during this fruitful period, characterized by rapid productivity gains underpinned by lightning-fast silicon chips and the World Wide Web.
The bursting of the dotcom bubble triggered a volatile downtrend, dropping the stock in progressively larger waves that finally came to rest at $228 in the summer of 2002. Citigroup stock tested the low a few months later and turned higher in a new uptrend that exceeded the prior high by less than 20 points in December 2006. That marked the top, ahead of a slow-motion pullback that accelerated into a death spiral during the 2008 economic crisis, dropping the stock to a multi-decade low at $9.70 in March 2009. (For more, check out: The 2007-08 Financial Crisis in Review.)
The subsequent recovery wave stalled at $54.30 just six months later, with that price level generating steep resistance that denied six breakout attempt between 2010 and 2015. Aggressive sellers broke multi-year range support in the mid-$40s in the second half of 2015, dropping the stock to a three-year low at $34.52, ahead of a multi-month recovery wave and breakout that has now reached an eight-year high.
C Short-Term Chart (2015 – 2017)
Five years of failed breakout attempts ended at $61 in July 2015, giving way to a steep decline into the first quarter of 2016. The multi-year low in the mid-$30s washed out significant selling pressure, supporting a broad uptick that completed a 100% round trip into the prior high in December 2016. The stock consolidated at that level for five months, completing a cup and handle pattern ahead of a June breakout that is holding near monthly highs.
On-balance volume (OBV) topped out in 2015 and tested that level in the fourth quarter of 2016. It declined into April 2017 and turned higher into June, but it remains stuck well below the prior peaks. This signals a bearish divergence due to inadequate sponsorship, predicting that the rally will stall and give way to broad range-bound action, most likely through multi-month testing around new support between $60 and $62. (See also: On-Balance Volume: The Way to Smart Money.)
The emerging leadership role should underpin price action in coming months. The majority of bank stocks and funds topped out on March 1, following President Trump’s Congressional address, and sold off to intermediate support at their 50-day EMAs. Other bank stocks are still glued to those levels, while Citigroup has lifted to range resistance and broken out. This maverick behavior demands full respect, despite the volume indicator’s non-confirmation.
The Bottom Line
Citigroup has rallied into a sector and market leadership role for the first time this decade, with a strong management team producing impressive results. This superior performance bodes well for healthy returns in coming quarters. (For additional reading, see: 3 Charts That Suggest Financials Are Headed Higher.)