CIT: Bull signal, but check out financials

CIT Group (CIT) was a casualty of the collapse of capitalist finance in 2007/2008. Its stock had sunk to a low of 5 cents per share before it declared Chapter 11 bankruptcy on Nov. 1, 2009. Thirty-eight days later, it re-emerged as a reconstructed company and a stock price that opened at $27.

So any discussion of CIT before its bankruptcy is quite irrelevant, and my analysis will take Nov. 1, 2009 as its starting point.

CIT on Thursday broke above its 20-day and 55-day price channels, setting a higher high of $44.88 that kept intact an uptrend that began in October 2011 from $27.68.

The push above the breakout level, $43.34, was the 10th to the upside since the company emerged from bankruptcy. Seven of those breakouts produced a profit, with an average yield of 8.3%. Those are far better odds than I normally see in my analyses. It's quite rare to see odds of success over 60%.

Of the five breakouts since the present uptrend began, three were profitable, for an average yield of 8.2%.

So whatever it's sad history half a decade ago, CIT has a bullish chart today.

CIT Group is a bank holding company headquartered in New York City, is the 42nd largest bank-holding company in the United States. It is not to be confused with the largest Citigroup Inc. (C), which ranks #3 in assets.

Analysts collectively give CIT a negative 17% enthusiasm rating, a level that falls short of intense loathing but is something less than a ringing endorsement of the company's future prospects.

And no wonder. CIT Group has a return on equity of negative 7.4% -- a loss on equity, and a high load of debt more than double equity.

Of the last 12 quarters, five have shown losses, the most recent being the 3rd quarter of last year.

At this point I can cut my analysis short. I have a deep aversion to opening a bull position in a company that has a negative return and nothing in the profit history to show that it is moving toward a better place.

CIT is tradeable -- the options grid has a fine selection of strike prices with open interest running mainly to the three- four-figures near the money.

And institutions love it. They own 95% of shares. And the price has been bid up to an extraordinary level; it takes $8.06 in shares to control a dollar in sales.

Even so, the horrible returns turn me away from a bull trade in this stock. Perhaps I'm being overly picky, but it's more risk than I'm willing to take.

CIT Group next publishes earnings on April 22.

CIT was one of four stocks to survive my screening of 1,838 stocks and exchange-traded funds. The other three survivors -- UHS, MLM and WBS -- all were bullish breakouts, but they're less liquid that CIT and at this point I'm looking for option plays to round out my holdings prior to the April expiration.

Decision for my account: Pass. I won't open a position in CIT. The chart is good and the odds are good, but the financials are just awful.

References

My trading rules can be read here.  A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.

And the classic Turtle Trading rules on which my rules are based can be read here.

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.