Taking a Look at Citigroup (C)

08/04/2009 12:01 am EST

Focus: STOCKS

Corey Rosenbloom

Founder and President, Afraid to Trade

A MoneyShow.com reader recently asked me for my take on Citigroup (C), asking whether or not the stock was perking up enough to warrant interest. I thought we’d take a quick look at the weekly chart and note the differences in the logarithmic and arithmetic charts and note a key level for bulls to watch.

Citigroup (C) Arithmetic Chart:


Click to Enlarge

The quick observation is that we’ve seen one of the most stellar and dramatic price drops of a major company, and it should serve as a lesson to investors that “It Can’t Go Any Lower” is not the best mantra to have—it can go lower!

A key example was in mid to late 2008, when price had formed a four-swing (powerful) positive momentum divergence that completely failed to produce any upside action. If sellers can shake off such “positive” momentum, you know that the stock is going to go lower once it breaks the support from which the divergence formed (in this case, around $15.00).

Price bottomed at $0.97 just before a powerful rally ensued, taking price up as far as about $4.50, and price has inched its way down off that resistance level.

So far in 2009, the falling 20-week EMA has contained all price advances, despite significant volume surges (over 4 billion shares traded in one week at times), which could indicate accumulation, or the sense that “Gosh, prices of a solid company are so cheap, I just can’t pass up buying here and holding for perhaps the next five or ten years.” All other lessons aside, I would watch to see if buyers can push price convincingly above the falling 20-week EMA (green) at $3.50.

Let’s compare the cleanliness of the algorithmic (all dollar changes are equal)chart to that of the compressed logarithmic chart (percentage moves are equal).

Citigroup (C) Logarithmic Chart:


Click to Enlarge

The log chart in this case is going to overemphasize recent prices (lower prices), which are larger percentage moves than higher prices, in which case the left side of the chart is compressed beyond recognition—a trade off.

There is a down-sloping (black) trend line I’ve drawn, which connects three price lows and also has served as key resistance as it is coincided with the falling 20-period EMA.
Without going into much further detail, I wouldn’t be interested at all in this stock unless bulls can break above $3.50. Until then, price still remains in a downtrend, making lower lows and lower highs. The EMA structure is in the most bearish orientation possible, and price is convincingly beneath all EMAs.

It’s still an interesting chart nonetheless.

By Corey Rosenbloom of AfraidToTrade.com

 

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