Bank of America Corp: BofA Runs Into Strong Technical Headwinds (BAC)

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Over the past seven trading days or so, banking stocks such as that of Bank of America Corp (NYSE:BAC) have rallied notably on the back of hawkish rhetoric out of a number of Federal Reserve speakers.

Bank of America Runs Into Strong Technical Headwinds (BAC)After a multi-day rally, however, BofA bumped into technical resistance Wednesday, showing exhaustion buying followed on Thursday by a loss of 1.5%. Active investors and traders wanting to make a bearish bet on BAC stock now have very well defined risk to leg into a trade.

It is well understood on Wall Street that banking stocks tend to, at least in part, dictate the direction of the broader market. Indeed, this once again held true over the past week or so, as the rally in banks helped fuel a renewed bid in the broader stock market.

In conversations with hedge funds and other investors this week, I tossed around the idea that this hawkish talk by Federal Reserve speakers may just be a game that then allows Janet Yellen to become more dovish again, thereby perversely giving the effect of a rate cut — at least psychologically. Silly? Maybe. But it is what it is, and we must play the market that’s in front of us as opposed to the one we wish for.

BAC Stock Charts

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Taking a look at BofA’s multi-year weekly chart, we see that after BAC broke below horizontal support around the $15 area in January, the stock rallied back, re-testing this area by April. After a small pullback, the recent rally pushed the stock back to this former line of support, which may now act as resistance.

I should also note that in the bigger sense it remains difficult to see how banking stocks can move meaningfully higher from here given that both economic and corporate profit data continue to deteriorate.

 

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On the daily chart we see that BAC stock’s ascent off the February lows has taken place in a well-defined channel, which I marked with the red dotted parallels.

By mid-April, the stock had found the upper end of this channel again, which coincided with horizontal resistance from the weekly chart above, as well as the red 200-day moving average.

This Wednesday, BAC stock once again tested horizontal resistance and the 200-day moving average to close off its intraday highs, which was followed on Thursday by a down day.

Traders thinking that the recent hawkish tone by the Fed as only a game that soon will be followed by more dovish speak again could use the Wednesday-Thursday bearish reversal to get short the stock or buy cheap puts for a trade.

Any break above Wednesday’s highs near, $15.20 particularly on a daily closing basis would be a sign to stop out of the trade, while on the downside a first price target near $14 could be used.

Please be aware that today Federal Reserve Board Chair Janet Yellen is set to speak at 1:15 p.m EST.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/bank-of-america-corp-bac-stock-back-at-technical-resistance/.

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