Banks are on the move Tuesday. In fact, if it weren’t for the surge in commodity stocks, financials would be the best performing sector today with a 1.5% gain. Throw a dart, and you’re bound to hit something that’s rallying in financials. But it’s Bank of America Corp (NYSE:BAC) that’s catching my eye. BAC stock is finally popping after two and a half weeks of profit-taking.
BofA is seeing some nice relative strength today. It’s almost doubled the gains of the Financial Select Sector SPDR Fund (NYSEARCA:XLF, 2.8% versus 1.5%) and has reclaimed much of the ground lost during its recent pullback.
Before we dive into the details, let’s take a look at Bank of America’s weekly chart.
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Slowly but steadily, buyers have begun to wrest control once more. Take note of the higher pivot high and the pair of rising pivot lows that have formed over the past two months. With prices now firmly above the 20-week moving average, the trend is officially pointing higher.
Last week’s pivot low is the key. As long as BAC remains above $23.60, bulls hold the upper hand.
It’s also worth noting how the Relative Strength Index (RSI) indicator has remained north of 50 throughout this year’s correction. Maintaining this bullish zone shows just how little momentum was lost during the downturn and helps support a positive outlook in BAC moving forward.
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The daily chart formed a bull retracement pattern that just triggered with today’s up gap. The fact that buyers stepped up and defended the 50-day moving average is a bullish omen.
How to Bank on BAC Stock
Rising bond yields are also aiding the bank rally today. Further strength from yields will continue to support bullish Bank of America trades. With implied volatility in the tank for BofA, long calls are worth a shot.
Buying the Sep $24 call for around $1 should do the trick. The risk is limited to the initial $1 and will be lost if the stock sits below $24 at expiration.
The reward is unlimited, but I’d consider taking profits if the stock pops to $25.50 or higher.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
