Bank of America Corp (NYSE:BAC) has been running in place for months, largely stuck in technical purgatory between $22 and $24 since March. Could that portend an eventual break to the high side for BAC stock once investors return from summer vacation next month?
Not if you look at how institutions have been treating the stock of late.
BAC Stock Losing Institutional Interest
Of the six largest U.S. banks, BAC attracts by far the least interest from institutions on a percentage basis. That’s not a huge surprise: no big-bank stock was hit harder by the recession than BofA, which lost more than 92% of its value in 2007-2008.
It has been difficult for the stock to wash away that stain, though BAC is certainly in a much better position now than it was five years ago, or even one year ago.
But it seems the excitement is dwindling, and hedge funds have been bailing out of BAC stock in droves of late. In February, institutional ownership of Bank of America stood at nearly 70%; it’s now down to 63%, lower than at any point in the last year. When you consider that no other big bank has an institutional ownership percentage below Goldman Sachs Group Inc’ (NYSE:GS) 72.7%, that’s a substantial difference.
Meanwhile, overall volume in BAC is trending downward, falling to a daily average of 61 million shares in the last two weeks, below its three-month average of over 70 million shares. Combine the two trends, and it’s clear institutions aren’t buying up BAC shares the way they were in late 2016 or in the first three months of this year.
So what changed?
Much of it is sector related. Bank stocks as a group have slowed since the initial ecstasy over Donald Trump’s election; the Financial Select Sector SPDR Fund (NYSEARCA:XLF) is down more than 2% this month and has scarcely budged since February.
The bank-friendly president sparked a 54% run-up in the stock during the four months after he was voted into office the second week of November. If not for the Trump rally, BAC stock could be down more than 15% in the last two years.
Of course, the same could be said for many of the other big U.S. bank stocks, even more so for Wells Fargo & Co (NYSE:WFC) and Citigroup Inc (NYSE:C). So perhaps what’s holding BAC back these few months is what’s limiting the upside in the financial sector as a whole: their big returns in the last nine months were inflated by the initial excitement that followed Trump’s election and inauguration.
Now that the excitement has faded, bank stocks have fallen back into a boring pattern of slow growth.
Sell Bank of America Now
With the stock market showing signs of weakness lately, investors are starting to sell out of some of their more mediocre positions. Given its six-month stagnation, BAC stock appears to be moving to the top of institutions’ “sell” lists. And that doesn’t bode well for the coming weeks and months.
Yes, BAC is long overdue for a breakout from its $22-to-$24 range. But there’s increasing evidence that that break will be downward — and perhaps quite steep.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
