Citigroup Inc (NYSE:C) has had a heck of a past year-and-a-half. C stock has rallied nearly 90% since its mid-2016 low, with most of that advance driven by the election of business-friendly Donald Trump.
Yet, with higher interest rates in the cards — one more expected in December followed by as many as four more in 2018 — Citigroup along with peers like Bank of America Corp (NYSE:BAC) and Wells Fargo & Co (NYSE:WFC) are all sitting pretty headed into the new year.
In the most straightforward sense, ergo, the stage seems set for more upside.
As veteran traders know all too well though, things happen when they seem least likely to happen. Citi stock may end up turning south again (and this time in a more serious way), falling victim a swing in the fickle sentiment that’s been a pillar of this gain. But, if that’s what’s in the cards, a key floor must be broken first.
Trapped, But in a Good Way
In its recently completed third quarter, Citigroup turned revenue of $18.17 billion into earnings of $1.42 per share. Analysts were only calling for a profit of $1.32 per share of C stock, and a top line of $17.9 billion. The bank also reported better year-over-year numbers on both fronts.
It’s all quite encouraging, to be sure.
Funny thing is, though the bank topped earnings estimates, Citi stock fell immediately after those numbers were posted as loan quality and quantity both suffered.
That weakness has since been reversed, for the record; traders just needed a little time to think about the matter. The rekindled rally also got some significant help from a rising support line, however, that everyone would be wise to note … especially in that it’s paired with a corresponding resistance line that has been just as reliable.
Click to Enlarge Take a look.
Although Citigroup stock appeared to be fighting a losing battle less than a month ago, all it took was a brush of the line that tags all of the major lows since July of last year to spark the bigger-picture rally that’s been underway since that same point in time.
This is the fifth time this floor has been successfully tested, though it was the ninth time it’s been touched for the timeframe in question.
The floor of this trading range is paired up with a nearly-parallel ceiling, though the ceiling hasn’t been quite as well tested. It’s only been reached three times since April of last year, though it’s not wavered either.
And, if the bullishness seen over the course of the past couple of days is any indication, the upper edge of this trading range is about to be tested for the fourth time.
Looking Ahead for C Stock
A year ago, before these support and resistance levels were even defined, the shape of the chart of C stock wasn’t a factor for short-term traders or for long-term investors. Now it’s become relevant to both. While it theoretically shouldn’t matter, once a trading pattern has been established, the market has a curious way of maintaining that pattern indefinitely.
It will break, of course. That is to say, sooner or later Citigroup stock will make a move outside of the confines of these lines. Once that happens, expect trade-worthy fireworks. And if it’s the floor that snaps first, brace for a sizable wave profit-taking, merited or not. (A bullish breakout, on the other hand, isn’t likely to make as big of a move as a pullback might dish out.)
Whatever the future holds, whether you’re a true buy-and-hold investor or a trader only interested in capitalizing on a short-term swing, the market’s collective subconscious has drawn its lines in the sand. Ignore them at your own peril.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.