We have, several times, given theoretical reasons as to why we believe that Citigroup and other financial stocks that survived the recession (aka not Lehman Brothers or AIG) are great buys.  But today, we look at a much more technical analysis of why Citigroup, in particular, presents an excellent buying opportunity.  This kicks off a week of six technical analyses of different stocks that we recommend you look into.

We divide up the technical analysis by the three aspects of the chart above: RSI, Stock Price, and Volume.

1) RSI: The RSI (Relative Strength Index) of a stock is usually one of the most reliable methods of determining momentum in a particular stock.  As you can see in Citigroup’s case, we have provided data since the March jump to show the repetitive pattern that the stock is manifesting.  Just as the stock’s RSI hit 30 (an indication of a stock being oversold) it doubled in price quite rapidly.  However, upon hitting 70 (an indication of a stock being overbought) it began to revert back to the mean of having about as many up days as it has down days (an RSI of 50).  After hovering there for about 2 months, the RSI again hit 30, and the stock again bounced back significantly, increasing by about 50 percent.  The pattern continued again as the RSI surpassed 70, came back down and is now quickly approaching 30.  Due to this movement towards 30, we believe that within the next week or so, the stock will see the rebound that is expected of it.  

2) Stock Price: The stock price along with the Keltner Channel represents another striking similarity between the jump in March, the jump in July, and the current situation.  In March, the stock skyrocketed with high volatility, causing a wide envelope in the Keltner Channel.  This wide envelope slowly narrowed as the volatility of the stock lessened and lessened and as the stock moved less and less.  But the mid-July/August rally caused another widening of the Keltner Channel as the stock price once again jumped.  This was followed by another narrowing as the stock price once again declined slowly as investors saw little reason to invest.  We are now seeing another point at which it can be expected that the stock will soon bounce out of the Channel in the green direction.  The excessive narrowing, and the lack of volatility presented by the stock price indicate that another strong and robust rally is expected.

3) Volume: Perhaps THE most indicative of all these technicals, in terms of where the stock is headed is the disparity between volume on up days and volume on down days.  As you can see, every time the stock has rocketed up, the volume has been incredibly high.  However, the subsequent loss of momentum and slow decline is marked by very low volume selling (consistently shorter red bars).  As you can see, the volume levels are once again nearing lows only matched by the days prior to the previous rally in mid-July.  It is thus that we believe that the longs will soon kick in again and send the stock up again.  The cyclical nature of the recovery experienced by Citigroup is very helpful and allows us to look at historical trends to predict future trends.  It is thus that we recommend Citigroup as a very strong buy for the next couple weeks.

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