Shares of Bank of America (BAC) slumped Wednesday after the bank reported its third-quarter results. From a technical perspective, BAC stock held an important support line despite the selling, but active investors might be able to pick up shares cheaper still in coming weeks as waning upside momentum still is a concern.
Specifically, Bank of America lost 1 cent per share for its third quarter, though that was better than the 9-cent loss Wall Street expected. Net income excluding preferred dividends for the quarter came in at $168 million.
Litigation has been the main issue plaguing earnings for the large banks — mostly as a result of shenanigans from before and during the most recent financial crisis. However, most big financials are seeing the light at the end of the tunnel, and that ultimately should begin to bode well for BAC stock and others, a they’ll likely start to increase their dividends more meaningfully.
From a price-action point of view, it is difficult for the broader market to act strong when the bank stocks feel heavy. As such, once bank stocks find better support again, it also will be a sign for more stabilization in the general U.S. stock market.
BAC Stock Charts
Looking at the multiyear weekly chart of Bank of America, we see that when the stock topped in March of this year, it did so at the red dotted resistance line that stretches back to the 2009-10 highs. The uptrending channel in which BAC stock has found itself since late 2011 was once again tested with Wednesday’s 4.6% selloff, and this is taking place with still waning upside momentum, as represented by the Relative Strength Index (RSI) at the bottom of the chart.
Also note that the price action since May has taken place in the lower half of the channel, which is increasingly putting pressure on the blue support line. In short, until the stock can show more relative and absolute strength, it is best avoided from the long side for the time being but should be watched closely.
On the daily chart, the lower high that BAC stock recorded on Oct. 6 is the biggest concern for the bulls for the time being. The 2011 support line — which held on a daily closing basis on Wednesday — is a good reference level, but it likely won’t mean much until the broader market can show signs of stabilization.
After Wednesday’s selling, BAC stock could bounce a little, but given the aforementioned positive correlation of the broader market with bank stocks, BAC, while still positively positioned through a multimonth lens, is best avoided from the long side until the broader market shows signs of stabilization. Once this takes place, which for BAC could occur anywhere from $14-$15.50, the stock could quickly move back toward the $17.50 area.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
