A Technical Perspective: Pegging the Citigroup Bottom

Thursday December 17, 2009 8:57 AM PST

By John Monroe

While investors scramble to lock in their recent gains in Citigroup (NYSE: C), I think it may be prudent to take a look at where Citigroup's stock may be headed now that everyone appears to be running for the hills.

I for one, believe the biggest gains in C are yet to be had. However, I'm not suggesting Citigroup is headed straight up the charts from current levels either. After putting in a good solid bottom back in March of this year at just under $1.00, shares of C have since rallied five fold to over $5.00 per share. Myself and many investors and traders experienced a good part of that rally, but I for one did manage to fall a bit short of selling into the high.

Now that the irrational exuberance has worn off, where's Citigroup shares going from here? Based on today's huge volume selloff in the stock, I think shares of C are headed for a critical support level of around $2.55 a share, which was put in back in July of this year. I've included a daily chart here that displays my assumption. The runup from $2.55 to over $5 represents a 5/8 expansion from the low of just under $1.00. A very logical profit objective for the smart money.

Now if Citigroup's stock can get back to that $2.55 level, it would be no surprise to see the stock blow through that level, shake out the weak hands, clean it up and position itself for the next major leg up in the market.

It has been my experience that when major support levels are broken, depending on the volume and price action, it often proves to be a catalyst for a stock to rally from the event... thus allowing investors who believe in the future value of a stock like Citigroup to reap the reward of much higher trading levels on a go forward basis.

Assuming the economic landscape looks decent when this event occurs, I like my chances of picking up shares of Citigroup just under this $2.55 level for a longer term hold. Time will tell.

I welcome any comments or arguments to the contra