ChartWatchCentral Stock Picks

Breaking the Bank

Date: April 16, 2003
Company: Citigroup
Ticker: C
Price: $38.26
Target Price(s): Initially $33.50, then possibly $31.66 or lower
Opinion: Bearish
Comments:Shares of Citigroup (C) soared on April 14th and 15th, after the company reported first quarter earnings which beat Wall Street's expectations by two cents. Unfortunately, there was only enough demand behind that rally to drive the stock as high as overhead resistance near $39.50. (chart #2)

Over an eight day period during the second half of March, C soared 23%. The shares then continued heading higher for another three week period, forming a rising wedge in the process. Support and resistance for this pattern is situated at the peak and low of the wedge, which is $39.50 and $33.50 respectively. Other potential support levels are situated at $35.67 and $31.68. Since the formation transpired on the heels of a steep surge, we consider the price action to have bearish implications. (chart #1)

Meanwhile, Citigroup's daily and weekly stochastic oscillator is overextended to the upside. As the chart depicts, C was overbought on a weekly basis four other times over the past eighteen months. Three of those occurrences coincided with significant peaks, while the fourth took place within a few months of a downside reversal. (chart #3)

To profit from this bearish formation, we suggest the June 40 put (Symbol: CRH) at $3.00. And even though it is extremely risky, we also like the May 37.50 put (Symbol: CQU) at $1.10. If our target is met over the next month, the option expiring on May 17th could more than triple, while the June issue could more than double.


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