Analyze My Trading Strategy: Citigroup
Full disclosure - am not a very active trader so please don't take it easy if what I'm proposing sounds ridiculously stupid.
Plan:
I've been long Citi for a while now, and I've gotten good returns off of it in the past year or so. Strategy has always been just to keep accumulating positions, confident it'll go up in the long run - and it has.
I've noticed though that Citi always tend to trade in a narrow range. For example, lately, it's been bouncing around $4.10 - $4.50 like a game of Pong. There seems to be so much liquidity and float in the stock that the price movements trade on kind of a herd mentality. What is the downside for example, to buying the stock everytime it hits around $4.10 or so, and then selling it when it goes up to $4.50? If I had followed my instincts on this, could've compounded my returns significantly.
Tyia.
I don't see any downside to this until the government finally stops selling its stake in Citi. It's pretty automatic that Citi's stock tends perform better once the selling pressures subsides since the government cannot sell due to an impending earnings annoucement in the near future. Obviously the key risk you take on by purchasing at $4.10 is that our friend Vikram doesn't tell us in a conference call that some additional write offs took place or that certain parts of Citi's business cannot be sold off.
Inherently by selling at 4.50 you give up any upside that Citi could appreciate, but honestly looking at Citi's market cap relative to its peers I honestly don't see how Citi can significantly appreciate more than 20-25% in the near future (i.e. 1-2 years). Factor in the opportunity cost of capital where you could deploy the same funds into more momentum based stocks (i.e. NFLX or CMG - btw their valuations are absurd) and do it with greater turnover I believe for the foreseeable future you'll do just fine. In my limited experience trading is about hitting singles, doubles, and the occasional triple. You're not investing and keeping a long term outlook for 5+ years.
In addition to what was said above, an interesting article from a few months ago:
http://www.foxbusiness.com/markets/2010/08/25/analyst-citigroup-cooking…
Put in a limit order at $4.10 with a trailing stop. Presto! Do it both ways if you're a real cowboy. I hope you're broker isn't too expensive.
$4.10 is on the way to $0.00 from $4.50, right?
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