C Watch

So you're one of the largest, most far-flung financial companies in the world -- no, in the known universe -- and your stock is priced like a penny stock. That's the problem with Citigroup (C). Be the trader bullish or bearish, at this point in its history, after the crash and bailouts and misjudgments, Citigroup just doesn't command a lot of market respect.

C moved to bear phase on Friday. To say the words "bearish on C" sounds sort of like saying "the sun rises in the east". I mean, so, what's your point?

However, the chart for the past year tells a different tale. C moved to bull phase on Nov. 5 and stayed there, despite one nasty pullback, until a nasty earnings report on Jan. 18 sent the stock gapping down to enter neutral phase on Feb. 22. And the decline has continued from there.

sym	chan	adx	traj	psar
C

Financially, C is a strong candidate for the bears: A return on equity of 6.67%, and a debt/equity ratio of 3.8x -- that is, take the equity, and nearly quadruple it, and you have the amount of debt.

If your house were in that condition, you would have been foreclosed long ago. C is underwater, big time.

sym	bday	blevel	stop	2-day?
C	mar4	$4.54	$4.68	✔

C remains under the two-day rule, potentially through Tuesday's close. Today's price appears nearly certain to close below the breakout level, which would remove the two-day rule from the mix.

(The rule says, in the case of a bear play, that the price mustn't close above the breakout level for two subsequent days.)

C's price is in the cellar. It's trading at the levels it saw in the mid-1990s.

The present price is bringing C into a level of downside resistance set last November.

Reversal Levels

• $5.15, +14.2% (jan. 28 swing high)
• $4.96, +5.0% (feb. 18 high)
• $4.51 --- You are here.
• $4.50, -0.2% (today's low, so far)
• $4.26, -5.5% (200-day moving average)

Bottom line: I like C as a bear play, although I would prefer to structure it as a spread, so I would still profit even if the stock didn't move.

The problem, however, is the price. It would take a lot of options contracts to get a decent bear spread going on C, or even sufficient put purchases to make the exercise worthwhile. Option volumes are far lower than those of stocks, and trading fees are much higher. So, just the logistics of trading a $4.51 stock are unattractive.

One possibility, of course, is to go short the stock. But then there's a carrying cost, the interest that any short position requires.

So I may not open a position on C for my accounts, not because I dislike the stock as a bear play, but simply because of the logistics.

Key

• chan: Channel phase, with green for bull trend, red for bear trend and yellow for neutral trend.
• adx: Average direction index location, indicating the strength, or the temperature, of the trend. Orange for 40 or greater, aqua (light blue) for 30 and up but below 40, magenta (light purple) for 20 and up but below 30, and brown for anything below 20. (Mnemonic: Orange for the overhead sun, blue for the surrounding sky, purple for sunset on the horizon and brown for the earth.)
• traj: Trajectory of the ADX, green for strengthening, red for weakening or yellow for unchanging. Note that if the adx column is orange and the trajectory column is red, then the position must be closed.
• psar: The parabolic sar, either green for bullish or red for bearish.
• bday: Breakout day, the day the price broke through the upper or lower 55-day price line.
• blevel: Breakout level, the price level of the line that was broken through.
• stop: The current stop/loss price. Early in a bull or bear phase, this will be 5¢ below the low or above the high, respectively, on breakout day.
• 2-day?: Marked with an "✔" if the two-day rule is in effect. Under the rule, if the price closes below the breakout level on each of the two days following breakout day, then the position must be exited.

About channel analysis

Read a detailed explanation of my channel analysis method, including trading rules.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.


No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.