Citigroup reports earnings on Tuesday, Jan 19 before the market opens. As traders "hate to love" Goldman Sachs, they "love to hate" Citigroup. Analysts are expecting a loss of 33 cents per share. But those estimates can only be applied in normal market conditions. Ever since credit contraction started in late 2007, the primary focus of market participants remains on improvement/deterioration in credit quality, reserve ratios and capital structure when it comes to banks' earnings. In my view, the visibility into "normalized" earnings still remains at least a year out.
From fundamental standpoint, I continue to believe that Citigroup around $3.50/share provides a great value in the long run. With the yield curve astoundingly in favor of banks, all banks including Citigroup should have an easy way to earn themselves out of their mess. But that's a long term view.
In the very short-term, we shift our focus to technical aspects. The daily chart shows the downward-sloping resistance line. Notice the volume has been declining as the stock continues to drift down. Additionally, since mid December the MACD, Stochastic and RSI are all showing improvements and a bias towards upward momentum. I believe this momentum is healthy to play on the long side going into earnings. If Citigroup breaks $3.65 resistance on decent volume, the momentum could carry the stock to $4. On the downside, I'd set the stop at $3.29 which is current support. I like the odds on the long side.
