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Charting Citigroup: A 'Nice' Range Trade

I've been advertising a rangebound market lately. If you are going to make money in this market, you have to think range trading.

Citigroup Center
AP
Citigroup Center

In a rangebound market, buying and holding or shorting and holding will not work as the market will simply churn while you wait. Like all things in the market, this will change.

But for now, if you care to make money, that is the trade the market is providing.

As an example, take a look at Citigroup. It has a well-defined range that has formed a nice range trade.

In fact, there's a range within a range when looking at this weekly chart.

The highs and bottoms of the larger range are defined and then the smaller range inside is also called out. The idea with all range trades — whether they are the common horizontal range or a range with an upward or downward bias — is to sell the rallies and buy the pullbacks.

You want to ideally buy strong stocks that are pulled lower by the general market and sell weak stocks that are pulled higher. There are some stocks that can be bought and sold short, but typically you look for the strong and the weak and concentrate on them.

What the Daily Chart Says

On the daily chart, Citigroup is easily telegraphing the trades.

The way to tell whether the larger range will be in play again is to watch the volume characteristics at the edges. In the case of Citigroup, the push higher last week did not come with enthusiasm. There was no increased volume when compared to the prior swing points. When that happens, and when the general market is rangebound, you have to sell the earlier purchased shares as the range trade is still in effect.

Some of the best markets to trade are rangebound markets. Ranges typically hold for three or four tests on both sides of the range and if you are buying the strong and selling the weak, you can measure their strength as they come to the edges of the respective ranges in order to decide whether to stay or leave. If they have increasing volume as compared to the swing point they are testing, then you stay with the trade. If they don't, you exit.

Upon entry it's the same idea. If you buy the weakness then you are planning for the range to hold. If volume expands rather than contracting at the swing point you are buying, then you need to reconsider the purchase or stop out if you have already begun to buy. In the markets, you can control risk and play proven patterns but nothing is ever a given in the stock market.

With that in mind, just keep trading the charts!

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Other Big Financials in the News:

JPMorgan Chase

American Express

Goldman Sachs

Morgan Stanley

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Disclosures:

At the time of publication, Little had no position in the stock mentioned, though positions can change at any time.

Disclaimer