Citigroup

Click chart to enlarge

Although we do not short individual stocks, we have a list of stocks that we believe are headed lower. On this list for some time have been C, BCSI and CROX. Above is a chart of C (Citigroup), which we believe is headed for $11 or lower in the near future.

Our general theory is that investors should buy stocks when they are in uptrends, defined by charts trading above an uptrending moving average, and simultaneously short stocks in downtrends, charts trading below their downtrending moving average. A portfolio of 4 to 5 uptrending stocks held long, and 4 to 5 downtrending stocks held short would put the odds heavily in the favor of the investor regardless of the broad market's direction.

Despite the recent selloff in the market (particularly in financials), you'll see in our previous post that we are not convinced a bottom has been put in just yet. In this spirit, there are charts that still look very bearish. C fits the bill to a tee. MER, C, and JPM report earnings this week, which of course is a major catalyst for movement. We are not betting on C's earnings when we say it's a good candidate for a short. We would prefer their earnings not be on the agenda. We are basing our call to short C purely on its chart. A stock that repeatedly hits the same new high or low eventually breaks through it. In the case of C, a break of short term support at 15.75 could easily lead to a drop of about 30%, earnings aside.