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Advanced Technical Analysis - Citigroup



Note: the following analysis is formulated as an assimilation of Fibonacci, DeMark, Elliott Wave and other technical indicators. It is offered as education and not intended as advice in any way.

In our June '04 note on Citigroup (C), we suggested that "Citigroup has been called the most important stock in the stock market thanks to a simple logic train: (1) The Fed's liquidity injection in the banking system (and thus the economy) has been the primary driving force behind the economic recovery of the last 18 months; (2) banking / finance stocks are the largest component of the S&P making up 21% of the SPX's capitalization and; (3) Citigroup is the single largest component of that sector."

We said then and maintain now that the cleanest observation we can make is that an impulse wave down from the 4/2 highs of $52.88 took shape at the May 2004 $44.83 lows. The subsequent action from the May 2004 lows has until late been difficult to analyze in terms of its relationship to that impulsive move down from April 2004's peaks. Our best interpretation of the action is that the entire sequence from May 04 to present is a large expanded flat correction that is approaching several very important Fibonacci resistance areas that could well turn C back down in a resumption of the bearish trend that started way back in April 2004.

Expanded flat corrections take on the regular A-B-C 3 wave form but the waves of that A-B-C breaks down into 3-3-5, where wave A has 3 legs, wave B has 3 legs, and finally wave C has 5 legs. For C, wave A took shape from the May 04 lows to September 04 peaks (a clear "3"), wave B took shape from the September 04 peaks to the October 04 lows (a clear "3") and finally wave C from the October 04 lows has taken on a clear "5" wave pattern where wave C = A +0.618*A, a typical Fibonacci relationship in an expanded flat correction. Too C is approaching a rare (and bearish) DeMark 9-13-9 trend exhaustion pattern from the October 04 lows. There is an alternate interpretation that calls the October 04 bottom a 4th wave correction that took the form of a W-X-Y (3-3-3 or a double zig zag) but for several technical reasons we do not think this interpretation is high probability. And even if in fact it is, the "5" wave move up from the October 04 lows is showing divergences, DeMark indicators and is likely ready to correct back to the 44-46 area at a minimum, even in this bullish longer term interpretation.

Thus, a set-up for a move lower, no matter what the longer term correct pattern interpretation appears a good risk / reward scenario. Any subsequent impulsive decline from this area will then let us know which of the above two longer term possible interpretations (the very bearish one and the somewhat bullish one) is operative. For now then, we think C remains set-up for the downside from one more new peak above the $49.30 high reached yesterday. If the very bearish trend is operative (and we have strong reasons to believe it is) then prices should retreat rapidly to the $42 low from October 04 before we could see a bounce (on its way to - eventually - below $30). Otherwise at minimum we expect $44-46 to be seen soon (not advice).

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No positions in stocks mentioned.

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