Citigroup and Goldman Sachs both declined after earnings yesterday, pulling XLF back down to the $22 level that it has been grappling with this month. (Full Disclosure: I’m long GS stock through restricted shares as a former employee.)
Both reports indicated weakness in the trading business in the 4th quarter, though GS actually beat on both revenues and earnings due to a strong performance from its investment banking and lending divisions. In fact, the reaction from GS stock was likely more due to high expectations than the results themselves. Citigroup, however, delivered a weak number on many fronts, not just in trading, but in retail banking and its overall outlook for 2014 as well. Both C and GS are 10-11 P/E stocks, but analysts expect 10-20% earnings growth over the next 2 years for C and only 0-10% earnings growth for GS. Of course, predicting earnings for banks 1 year out has been a fool’s game for the past 5 years.
Despite the negative reaction in both stocks, the technical situation actually looks much better for GS than C going forward. GS remains above its critical $170 breakout level:
The $170 support level also coincides with the rising 50 day moving average, and anywhere near there would be a great spot for a short-term long entry.
Meanwhile, Citigroup’s price action yesterday was much more damaging. The stock moved back below the $53.50 level that had served as resistance for much of 2013:
Now, despite the breakdown, the one positive for C is that it made a new 5 year high this month, just surpassing its August 2009 high of $54.30. GS, on the other hand, is still a ways away from its October 2009 high of $193.60, and also still below its April 2010 high of $186.41, just before the disclosure of the SEC’s Abacus investigation.
In short, GS is the better short-term chart, but if C does hold here and move back above $54, it has open air above it. Having said that, for now, we prefer the GS setup on a move back the $170-$172 area.