Citi is Set to Gain as U.S. Treasury Lockup Expires

Patience isn’t always a virtue on Wall Street.

Citigroup Inc. shares have mostly remained within their range the last couple of weeks, while the broad market has rallied, because investors are apparently hoping to buy the stock cheaper when the lockup restriction on the sale of the Treasury’s stake expires in mid-March. Budding bullish technicals, however, suggest that the stock is likely to drift higher until that overhang is lifted. Then the real rally could start.

A Deutsche Bank survey indicated that 68% of the people surveyed “underown” the stock, as 49% didn’t own it, and of the 51% that did, 38% were underweight. Analyst Matt O’Connor also said that half of those surveyed would buy when the government sells (another 22% could go either way), while most would be willing to buy at or slightly below current prices. The stock was up 1.6% at $3.48 a share in recent afternoon trading.

Separately, short interest in Citigroup has more than doubled over the last three months, from 216 million shares as of Nov. 30 settlement to 447.8 million shares as of Feb. 12 settlement, the latest reading.

Basically, unless the government decides to dump its stake, which is highly unlikely, Wall Street seems well-prepared for any sales. Perhaps too prepared.

The stock has stalled in the middle of its recent range–$3.11 to $3.70 since mid-December–but it’s technically significant that it has mostly held above the 50-day simple moving average the last couple of weeks. The 50-day currently comes in around $3.37.

In addition, the momentum indicator, which measures the strength of a move, has been diverging bullishly from the Citigroup stock the last few months, as the indicator produced higher highs and higher lows since bottoming in mid-December, while the stock made a lower high and low.

Once the lockup expiration passes, whether the government starts selling or not, the overhang will be lifted, and the stock will be free to rise to resistance at the $3.70 to $3.80 level, which encompasses the January high, the 200-day simple moving average and previous support in November 2009. The next area to watch is $4.25 to $4.30, which includes the November high and the 50% retracement of the decline from the August 2009 52-week high ($5.43) to a February 2010 low of $3.11.

Maybe then, when investors are looking even higher, the Treasury’s sales will take effect.