Tuesday, November 27, 2007

Trader Alert – Buy Citigroup

Boy, I hate doing this. But ya gotta do what ya gotta do.

The high profile sovereign wealth fund decision by the Abu Dhabi Investment Authority to make a $7.5 billion deposit in Citigroup’s piggy bank was certainly done with the long-term in mind. However, since most active investors are much more short-term oriented, the decision process for this group tends to be a tad different.

For this more twitch oriented audience, I refer back to the very successful technical timing tool that I have noted on frequent occasions – momentum and MACD.

To make this work, the two must be viewed in concert with each other. One alone will not produce the kind of reliable results an investor needs. Taking Citigroup and its economic sector, Financials (which include other financial institutions), the above charts* show that Citigroup is actually fairly close to outright short-term buy call, while the Financials are not quite there.

C’s momentum is not confirming its lower price lows while MACD is right at its crossover point. In other words, while MACD has not exactly flashed a buy call it is close enough and, therefore, anyone thinking of buying C for a trade should do so.

XLF presents a slightly different story. Its momentum is also not confirming the price action lows (a sign of slowing downward selling pressure) but not to the same extent as C is. Its MACD, however, is not quite ready to produce the crossover. Until both conditions are met (or at least close enough), XLF remains off the short-term buy list.

It is important to note that the buy call on C and the potential buy call XLF are within the context of its downward mega trend, as noted in the moving averages principle.

Investment Strategy Implications

If the stock market stages an end of year rally, ADIA will be noted as prescient in their decision to buy into Citigroup. What will likely not be noted outside this blog is that the short-term timing tools noted above concur.

*Click on image to enlarge.

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