I rarely jump in and interpret bank or brokerage earnings releases. Sure, I'll read the headline numbers, any guidance provided, and a few analyst takes on reports. And there is so much more to Citigroup's (C) latest quarterly report than earnings per share of $1.87 on revenue of $18.6 billion. For even the best, it will take days to break down.
Historical reaction doesn't take days. And while we know history doesn't repeat, it's ignorant to think it doesn't rhyme. Maybe it won't provide a definitive roadmap, but it can be a guide. Let's take a peek at Citigroup.
The stock had been slightly red all morning with a push back to flat post lunch time. Bulls probably want to see this actually close in the red. Over the past 18 months (six reports) if the stock closed red the first day after reporting it was higher 13 days, five of six times. Even better, the red open, no matter how small, has led to a higher price six straight reports. Shares did give up a few percentage points in the interim period, but it has been small and few and far between. How high Citi could bounce is another story.
The technical setup heading into earnings was a battle of bullish pattern versus bearish. Over the past two months, Citigroup has formed a bearish megaphone pattern, which consists of higher highs paired with lower lows. Quite often the resolution is lower. At the same time, an inverse (bullish) head and shoulders pattern traced out dating from October through April. I'll be the first to admit the upside target of the pattern feels a bit ridiculous since it targets $85 on the upside over the next six to eight months, but as long as Citi remains above $66 on a weekly closing basis, a move to $74 over the next 1-2 months feels very realistic. Shares are not technically overbought despite the huge bounce since Christmas Eve and the overall market continues to churn higher.
I'd still lean towards playing a banking ETF here since the patterns are similar between C and one like the Financial Select Sector SPDR Fund (XLF) . Removing single stock risk feels like the best play as we move deeper into earnings season and the bank/investment houses numbers are broken out over the days following each of their reports.