Bank of America Corp (NYSE:BAC) lifted in Tuesday’s trading session, pushing the banking giant’s shares the upper end of a two-week trading range. Now, BAC stock is holding up well through a technical lens, and currently is providing active investors and traders with some well-defined risk and reward lines.
And in the bigger picture, the financial sector broadly and banks specifically have been showing relative and absolute strength again for the past few months — a trend I expect to continue in the near and medium terms.
However, before we look at BAC stock price charts, let’s get a quick understanding of banks’ relative strength in 2015. Below, I crafted a so-called ratio chart whereby I divided the KBW Bank Index by the S&P 500. The picture clearly shows the relative strength by the banks in recent months, which has brought the ratio back to a diagonal resistance line from May 2014.
Furthermore, the ratio has been coiling up below this line of resistance in recent weeks and increasingly looks to want to attempt a breakout move.
On the multiyear weekly chart of BAC stock, we see that price action has largely been rangebound since spring 2014. However, if the banks show some more relative and absolute strength in coming weeks and months, BofA has an upside target at least near the upper end of this range, around the $18 area.
On the next chart below, I divided BAC stock by BKX which shows us the relative strength of Bank of America shares versus the index. Clearly, BofA has outperformed the index since mid-April, and now the ratio is in the process of breaking past a line of resistance.
In short, BAC stock is showing relative strength within its group of peers, which itself has been showing relative strength versus the broader market for the most part of 2015.
That’s a fruitful sign.
Finally, moving over to the daily chart of BAC stock, we see that after a strong rally in May, shares have recently slipped in to a constructive-looking consolidation phase that is also taking the shape of a bull flag pattern (black parallels). This consolidation is also taking place below a horizontal line of resistance (red dotted line) that marks the year-to-date highs and stretches back to February.
Active investors and traders could look to buy BAC stock around the $16.80 area for a move into $17.50, while any significant bearish reversal would call off the near-term bullish setup.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
