It’s that time of the season again, when both your favorite and least-favorite listed companies report their latest quarterly results. Some large banking stocks are kicking things off today, but my focus is on next week, when Bank of America Corp (NYSE:BAC) reports first-quarter earnings. That’s because BAC stock is dancing near a technically important level and is worth your attention.
Before digging into a couple of charts, one word of caution as it relates to trading during earnings season. I reiterate this warning every earnings season because it bears repeating.
Buying or shorting any given stock in hopes of a specific reaction immediately following the earnings report is a low-probability way of making money over time. Sure, you hear traders boast on the Twittersphere about how they reaped amazing profits by participating in a huge up-gap and rally thanks to blowout earnings or better guidance. What you don’t hear about are the losses, and they’re there. Rest assured, trying to profit from such earnings season “plays” over time will lead to headaches and flat profits at best.
That’s why today’s post is a trade idea about legging into BAC stock once the mega-bank’s earnings have come and gone, and shares have had time to settle and digest the news.
BAC Stock Charts
On the multiyear weekly chart, we see that Bank of America has rallied nicely off the 2009 lows along with the rest of the stock market. However, in relative terms versus broader large-cap stocks, BofA continues to lag badly.
To be clear, this applies to large-cap banks in general. The whole space has plenty of catching up to do.
Following the U.S. presidential election last November, BAC stock broke past a critical technical resistance area around the $18-$19 mark, and with force. Through this multiyear lens, a check-back to this previous area of resistance is entirely possible before the stock ultimately resumes higher. However, it is too early to tell whether such a move will take place.
Maybe next week’s post-earnings reaction will give us more clues.
On the daily chart, we see that after BAC finally exhausted its most recent rally in early March, it proceeded to “correct” about 14% into late March.
The $22-$22.50 area coincides with technical support from last December and this January. The bears will point out that since last December, Bank of America may have traced out a head-and-shoulders pattern, which by definition would have bearish implications.
So, should BAC stock break and hold below $22 following next week’s earnings report, that could be a first sign that a check-back toward $18-$20 is in the cards.
Alternatively, should investors like what Bank of America has to say — and that’s followed by a bullish move in BAC stock that puts it close to back above $23.50 on a daily closing basis — then a next move higher toward the mid- to high $20s may be underway.
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