The latest rally in the U.S. stock market kicked off with the arrival of September and has taken with it many of the important sectors in the S&P 500, including the financials. As a result, the Financial SPDR (XLF) is higher by just about 3.80% month-to-date, and continues to act strong.
On Tuesday, the XLF managed to gap past a confluence zone made up of its 50-day simple moving average (yellow line) and a horizontal resistance line. While not all stocks within the ETF look great, many of the more important stocks do look juicy for more upside, including Bank of America (BAC).
On the 18-month logarithmic chart of Bank of America stock, it is clear that BAC still is holding onto to its late 2011 uptrend, and over the past 12 months it also has found/respected support at its 100-day SMA (blue line). Also note that the stock continues to work higher in a series of breakouts from so-called bull flag patterns (more on this on the next chart), which is keeping Bank of America trending higher.
As the saying goes, ‘The trend is your friend,” which is why I currently see no reason to fight it. Rather, I am looking for a continuation move to the upside.
On the closer-up chart, the stock’s latest bull flag pattern is well displayed. After a sharp 24% rally off its June lows, the stock began to settle into a period of consolidation toward the back end of July. On Tuesday, just like the XLF, Bank of America stock made a meaningful move higher and, for all intents and purposes, broke out of this bull flag formation. This now significantly increases BAC’s chances of moving toward its July highs near the $15 mark — and potentially beyond — in coming weeks.
What’s further bullish about Bank of America stock is that it managed to trade higher on Wednesday despite being kicked out of the Dow Jones Industrial Average along with Alcoa (AA) and Hewlett-Packard (HPQ) due to a reshuffling of some of the Dow components.
Unless the stock develops a major bearish one-day reversal, odds seem to favor more upside over coming weeks.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here. As of this writing, he did not hold a position in any of the aforementioned securities.