Citigroup Posts Large Loss, but Outlook for Financials Improving

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Citigroup Inc. (C) announced another quarterly loss after at least $7 billion of write-downs. The second-quarter net loss amounts to $2.5 billion compared with earnings of $6.23 billion last year. The good news is that analysts were expecting a loss of more than $3.5 billion. But unfortunately it is still a very significant loss.

In May last year the stock was worth $55. In Thursday's trading it was about $18 after a low during the week at $14. The company may cut its dividend and work to reduce costs eliminating jobs. They are also selling assets to raise capital. Citigroup agreed recently to sell its German consumer banking unit for $7.7 billion.

In the daily chart above you can see the long down leg started at the beginning of May. C has lost more about $10 since then. MACD has developed several positive divergences. This week has been characterized so far by very volatility. The reaction developed from the low of July 15 has been quite impressive. On Thursday Citigroup posted an up gap that now represents a level of support. The down-trend is strong on this sector and volatility is high. For the moment we can say this is a rebound. There are many resistances ahead. The first objective is in the $19 area and support is at $16.50.

Is this going to be the turnaround point for troubled big banks? Are we going to get more bad news and bailouts?

Some are predicting that many small and regional banks could collapse in the next year. You can see The Consumerist post on the subject. I would expect that we continue to see bad news on the markets for some time, but I am also convinced that eventually the financial system will manage to recover. At these prices there are good bargains to be made. Timing, however, is difficult, if not impossible. Also the selection of the stocks may not be easy: focusing on an ETF could be a good idea.

Disclosure: None