Is Citi For Real This Time?

Posted by barkand on October 5, 2010 under Bollinger bands | Be the First to Comment

In the past two trading days, C has given us a long white candle which broke through the upper Bollinger band followed by a pullback. We saw the same thing in mid-July, with the added bonus of a gap or “window” if you want to use the candlestick terminology. As you can see from the chart, that apparent breakout didn’t turn out so well for traders.

Will it be different this time? I am optimistic that it can be. First let’s look at volume. The volume on the recent breakout day was a bit better than the false breakout in July. Not alot more volume, but it was better. Also, the entire rally in early July from the $3.80 range up to $4.30 came on uninspiring volume.

The second clue that it could be different this time is that the more recent pullback covered only about half of the previous candle’s real body. Conversely, in July we saw prices retrace almost all of the previous day’s activity.

And our third clue comes from comparing C to the S&P bank index ($BIX). In the chart below, I have plotted the relative strength of Citigroup shares to the BIX and highlighted the two time periods in question. During the July breakout, C struggled to make a relative high, never leaving the comfort of the Bollinger bands. However, during the recent attempt it has surged to a new relative high and has even pierced through the upper Bollinger band.

None of these three clues individually will knock your socks off. But together they suggest a successful breakout for Citi shares.