C- How Low Does Citigroup Go?

Posted on April 27, 2010 by Chief Market Technician in *TODAY'S STOCK SETUPS, GLOBAL CHART ANALYSIS

 How low does Citigroup Go?  Why is Citigroup getting Hammered?

Citigroup had finally gotten out of its funk this February but it looks like it didn’t last long.  Buyers have been showing up at the aggressive buy areas such as the 10 and 21 day moving averages for weeks but today they just weren’t there.  The past 2 days have been met with very heavy selling as the volume has been way above average.  Those who bought 5 days ago are already down nearly 15%.  This is why buying at the right spot is so critical and can make or break you as a successful investor or trader.

Working Big Orders

Why is Citigroup getting hammered?  The answer is not too hard to figure out.

#1 The market itself has aggressively started to selloff which takes down everything with it but there is more to this than just a market timing issue.

#2 This is the real reason for Citigroup’s collapsing prices.  The fed received approval to start selling 1.5 billion shares of their 7.7 billion position or 27% of the company.  What! Yes I said billion, not million.  Now as a former market maker I am used to working large orders into the market and this is an art form in itself.  First off you never show your hand to other participants in the market.  You play it cool and let them think you are buyers and not sellers if at all possible but you never let them know you have a huge sell order with more size behind it. 

Why does this matter?

They said they will not just dump their shares into the market but will trickle them into the market based on many factors.  This matters because this is like Chinese water torture!  Any bit of momentum the stock gets will be met with a “trickle” as they put it.  Let’s hope they can line up some big block buyers who are already stuck in Citigroup and don’t want to see any lower prices.

 Front Run

Here is the real problem here.  Even if the Treasury doesn’t sell any of their freed up shares, the price will still go down. This is due to several factors.  First off if you are a large shareholder and were looking to unload some shares in the near future you will dump them ahead of the U.S. treasuries order.  Everyone wants to front run the big order before the bids drop.  If you are a smart enough portfolio manager and you know what you are doing you know that the other smart money will be jumping ahead of the Treasuries 7 billion shares as well making you rush even more to lighten your load. 

Pull the Bids

Now if you are a big institutional buyer and accumulating some Citigroup for the long term how are you going to play this? Are you going to be on the other end of this big order?  Are you going to raise your bid or are you going to pull your bid? You are going to pull your bid because you know some size is coming to knock Citigroup lower.  This “Trickle” will suck the life right out of the stock.  This is why all the bids went scattering for the bushes until the coast is clear and the big order is gone.  Meanwhile you realize that you can get as much Citigroup as you could possibly want at lower prices.  You are going to patiently sit on your buy orders until the carnage is over.  The realization that a big order is trickling into the market, you’ve got other funds dumping their shares ahead of the big block and you know the buyers are hiding scared but happy in the bushes brings us to our next point…short sellers.

And the Short Sellers

Of course the Short sellers are going to pile on.  The stock just ran 63% and was road blocked twice at the $5 level.  You have huge sell orders coming for quite some time with no bids and support is quite a bit lower.  It’s a short sellers dream. 

Our conclusion is we wouldn’t touch Citigroup at this point as it should get hurt over the short term.  We may see a bounce here but this will most likely be stalled out at any resistance levels for awhile.

Support and Resistance

These are the levels to watch.  If you see positive reactions at these levels, than we may be getting close to the end of the selling.  If they break on heavy volume then we would expect much lower prices.

We see support near the 4.05 level which is still another 6% lower.    Not too sure this price even holds with all this volume coming to market.  The next support level is at $3.95 which is about 9% lower from Tuesdays close.  Next we see the $3.85 which would fill the March gap and the November lows. $3.77 may come into play as well but in all reality we may see this stock trading back in the low $3 levels over the near term.  Now longer term it may go higher but working off all that supply of stock will definitely hurt Citigroup.

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