C is trading near a pair of trendlines that have historically bearish implications
The shares of Citigroup Inc (NYSE:C) gapped lower in mid-March, breaching their 200-day moving average for the first time since August 2016. The bank stock has since been stuck churning south of its pre-gap levels, and a recent rally up to this overhead trendline could signal bigger losses for C in the short term.
According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been four other times since 2015 where C stock has come within one standard deviation of its 200-day moving average after trading below it 60% of the time in the previous two months. This has resulted in an average one-month loss of 6.2% for the security, with two-thirds of those returns negative.
Underscoring the theory of potential near-term trouble for Citigroup stock is its recent ascent into its 160-day moving average -- another trendline that's had bearish implications in the past. Per White, in the seven times the equity has risen to within one standard deviation of this trendline after a lengthy stretch below it, C has gone on to shed 5.1%, on average, in the subsequent month, with a low 33% win rate.
Looking closer at the chart, a move of either magnitude would put C shares back near $67-$68 for the first time since mid-July. The stock is currently down 11.6% from its late-January post-recession peak of $80.70 to trade at $71.30, and stuck below its $200 billion market cap. Just above here is the equity's year-to-date breakeven mark of $74.41.
An unwinding of optimism could create stiffer headwinds for the financial stock. Of the 17 analysts covering the underperforming shares, 12 still maintain a "buy" or "strong buy" rating, while the average 12-month price target of $83.52 is a 17% premium to current trading levels. This leaves the door open for downgrades and/or price-target cuts.
Continued short selling could also pressure Citigroup shares. Short interest jumped 12.1% in the two most recent reporting periods to 19.54 million shares. This represents a low 0.8% of the stock's float, meaning the bearish bandwagon is far from full.
Those anticipating more losses for the bank stock may want to consider an options buying strategy. Citi's Schaeffer's Volatility Scorecard (SVI) of 17% ranks in the 1st annual percentile, indicating short-term options are pricing in relatively low volatility expectations at the moment.