Citigroup Prepares To Shatter $5 Resistance

Back from near-death experience

The third time could be the charm for Citigroup (C) to finally break through the $5 resistance level that twice before in recent memory has sent the stock tumbling lower.? Big banks have been big movers of late, and Citigroup is riding the momentum to potentially surmount the significant price level.

Over the past month, financials have helped carry the flag. The Financial Select Sector SPDR ETF (XLF) is up 6 percent since November 15, matching the red hot energy and materials rally. Citigroup has more than doubled that return, springing off the 50-day exponential moving average gaining 13 percent, and is now quickly approaching a flashpoint.

The $5 per share level is an especially significant technical one for Citigroup. Saddled with an inflated beta since the financial collapse, Citi shares carry an additional risk premium that has prevented many funds and institutions from owning the stock because it trades below $5.

Since plunging from $57 to an all-time low of $0.97 in March 2009, Citigroup has tested the $5 per share resistance level twice, once in August of 2009 and again last April. Back in April, a broad market correction dragged on Citigroup, along with the rest of the financial sector. Citi bulls appear to be gearing up to make a run once more.

Currently trading near $4.75 a share, Citigroup is in the midst of a definite uptrend. Volume has been extremely strong during the latest bullish move, and a rising relative strength index with room to run higher before registering an overbought reading suggests the possibility of a retest of the $5.07 April 16 high. The next resistance level would be the $5.43 August 2009 high if the stock can indeed rise and hold above $5.

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Citi’s fundamental story is improving as well. The government still owns a slice of Citigroup in the form of warrants and preferred stock, but Uncle Sam’s $12 billion profit from unloading the biggest share of federal ownership removes the looming shadow of anticipated selling pressure.

Additionally, Citigroup is leaner than it has been in a long time, having divested itself of assets like Smith Barney, Primerica (PRI), and Japanese brokerage unit Nikko Securities. Even considering the Nikko sale, Citi still has a huge overseas presence in growth markets.

Citi remains heavily exposed to housing drag with toxic assets souring the balance sheet, and there still could be substantive blowback for big banks holding bad European government debt. But the technical wave, coupled with the Citigroup’s improved financial position, may prove to be the difference maker this time.

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