Editor’s note: Serge Berger, the head trader and investment strategist for The Steady Trader, will be providing the Trade of the Day until Sam Collins returns on June 27.
Citigroup (NYSE: C) – The financial stock completed a 1:10 split on May 9, and such a split typically has the immediate effect of putting a stock back on institutional investors’ radars. But it hasn’t quite worked for Citigroup yet. The stock price has fallen about 15% since the stock split. Nonetheless, there are some positives here worth touting that could give the stock a boost and may be interesting for investors with a time horizon of two to three months.
Financials have been underperforming the broader market. On a relative basis, the financials as a sector are about 10% lower since the beginning of May, whereas the S&P 500 is off about 5.5% over the same time period. The chart below displays the divergence of the Financial Select Sector SPDR (NYSE: XLF) versus the SPDR S&P 500 (NYSE: SPY).
Citigroup has a book value of around $58.45 per share, well above the current share price of around $37.90. Additionally, the so-called Durbin Amendment — a rule that puts a limit on fees banks can charge retailers with debit card swipe fees — is now no longer a major overhang.
From a technical perspective, the stock has now tested the lows from August 2010 as Relative Strength Index (RSI) and stochastics are oversold. Yesterday, the stock enjoyed a nice bounce along with the rest of the market.
I would like to see a retest of Wednesday’s lows or marginally below in order to establish a firmer bottom, but I feel that given the aforementioned fundamental, structural and technical picture, Citigroup could at the very least be an outperformer on a relative basis over the next two to three months. The next support level below here is near $35.50, which could be used as a place for stops.
