In our last medium-term technical outlook report on Citigroup (C) dated on 09 Jun 2017, it had rose as expected and met the first medium-term resistance/upside target at 66.60 (please click here for a recap).
Later today (14 July), Citigroup will announcement its Q2 earnings numbers before the open of the U.S. cash market and consensus is pegged at 1.21 EPS. Thus, it will be worthwhile to examine its current technical elements before its earnings announcement. Before we take a deep dive into the technical analysis of Citigroup, let’s us discuss several key fundamental factors as follow;
- Financial stocks had been hammered down by close to 10% on average during the March to April 2017 period due to the uncertainty on the implementation of “Trumponomics” policies (financial deregulation) that was promised during Trump’s presidential campaign. In the recent weeks, financial stocks had rallied and the S&P 500 Financials sector ETF (XLF) had recorded a gain of 20.11% since 09 November 2016 (post U.S. presidential election) that made it the second best performing sector just below the Biotechs (XBI) which had a gain of 24.15% seen in the same period. One of the catalysts that triggered the turnaround in the Financials was the recent announcement from U.S. Federal Reserve that almost all U.S. banks passed its “stress test” last month and the Fed had allowed 34 largest U.S. banks to use their extra capital for stock buybacks, dividends and other purposes beyond being a cushion against financial catastrophe. Citigroup released an announcement right after test result that it would double its dividend pay-out and share buyback programme to US$18.9bn from US$15.6bn over a year.
- Due to the recent flattening of the U.S. treasury yield curve where the difference between the 30-year treasury bonds and 5-year treasury notes had narrowed to 96 basis points seen in late June 2017, the lowest levels seen since December 2007, expectations on U.S. banks’ profits for Q2 2017 had been lowered and also given a low volatility environment in Q2 2017, several large banks had warned that their trading revenues are expected to be lacklustre. Citigroup’s consensus for its Q2 2017 EPS is pegged at 1.21 which represents a decline of 2.4% in earnings over a year ago in the similar period where its Q2 2016 EPS reported at 1.24. Therefore, expectations have been lowered down on Q2 2017 earnings for Citigroup and a slight positive earnings surprise above current expectations may add see a positive reaction on its share price. My colleagues, Ken Odeluga and Kathleen Brooks had written a more in-depth article on the upcoming U.S. banks earnings announcement (please click over here & here to read)
Medium-term technical outlook on Citigroup (C)
(Click to enlarge charts)
Key technical elements
- Citigroup’s medium-term uptrend in place since 27 June 2016 low remains intact as there are no signs of bearish exhaustion seen on its daily RSI oscillator (a momentum indicator) (see daily chart).
- The recent 3.4% decline from its 68.91 high printed on 03 July 2017 has managed to stall on the upper limit of an intermediate gap support of 66.26/65.40. In addition, its price action has formed a daily “Doji” candlestick pattern on Wed, 12 July 2017 which suggests that the downside momentum of the recent decline has start to ease (see daily chart).
- The key medium-term support now rests at 62.50 which is defined by the former range top of 08 March/25 May 2017 and the lower boundary of the ascending channel in place since 27 June 2016 low (see daily chart)
- The significant medium-term resistances remain at 72.00 and 75.85/77.10 which are defined a Fibonacci projection cluster and the upper boundary of the aforementioned ascending channel (see daily chart).
Key levels (1 to 3 months)
Intermediate support: 66.26/65.40
Pivot (key support): 62.50
Resistances: 72.00 & 75.85/77.10
Next support: 55.40/54.30
Conclusion
Therefore, we maintain the bullish bias on Citigroup as long as the 62.50 tightened key medium-term support holds for a further potential up move to target the next resistance at 72.00. A break above 72.00 (daily close) should open up scope for a further potential rally towards the75.85/77.10 zone.
On the other hand, failure to hold above 62.50 is likely to damage the on-going medium-term bullish upleg in place since 27 June 2016 low to trigger a corrective decline towards the next support at 55.40/54.30.
Charts are from eSignal
Disclaimer
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this email, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs. All queries regarding the contents of this material are to be directed to City Index, a trading name of GAIN Capital Singapore Pte Ltd.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
