Stocks to watch on Tuesday: CE, IEX, SONC >>> READ MORE

Regardless of DOJ, More Pain Ahead for BoA

Selling likely to be compounded for technical reasons


Bank of America (BAC) — Shares fell 2% Wednesday on news that the financial institution and Department of Justice hit a roadblock in their negotiations over fines for the sale of mortgage-backed securities. BAC’s latest offer is $12 billion, while the DOJ is said to be looking for closer to $17 billion. Regardless of the fundamental factors driving the stock this week, selling at this level is likely to be compounded for technical reasons.

Here we see a dead cat bounce in which the stock gapped lower, rose through the gap, and then collapsed again. We have found a two-tiered target to work well in a situation like this. The first is the low established after the initial gap. This is where the bounce began that should have terminated at the top or bottom of the gap. If the stock fails to consolidate at support near $14.50, the secondary target is the 161.8% retracement of the May-June rally at $13.43.

Despite the fundamental issues, BAC remains in a long-term uptrend, so a move above $16 should be considered an invalidation of the downside targets.

BAC Stock Chart
Click to Enlarge

John Jagerson and Wade Hansen are the editors of SlingShot Trader, helping investors capture options profits trading the news by using a proprietary 100% news-driven trading platform that turns event-driven pricing inefficiencies into fast profits. Get in on the next trade and get 1 free month today.

New to options and need more personal guidance? Try our online options course: Strategic Investing and receive your first two weeks free by clicking here.

Article printed from InvestorPlace Media,

©2017 InvestorPlace Media, LLC