Shares of Bank of America Corp (BAC) pushed to fresh year-to-date highs Monday as financial stocks broadly have pushed higher along with the broader market in this year-end rally. BAC stock remains a particularly interesting candidate for higher prices over the next few months, and should be put on our radars as we slip into our 2015 costumes.
In terms of news flow, while plenty of brokers keep reiterating positive comments on the large banking stocks, the next big item on the calendar for Bank of America’s investors is the earnings report scheduled for Jan. 15, 2015.
When I last shared my bullish view on BAC stock on Nov. 12, I focused on the stock’s constructive multi-year weekly chart and said:
“BAC stock shouldn’t necessarily be chased higher in the immediate term, but do consider it in a multimonth time frame. Any dips into the mid-teens from this perspective should be bought for an eventual move into the $18.50-$19 area.”
I’m reiterating this posture today, particularly as far as the bigger picture is concerned. But there is one thing that investors should be aware of, and that’s the sign coming out of the bond market.
Falling yields on the longer end of the bond yield curve and a generally flattening yield curve are no great news for banking stocks, as a general rule of thumb. The yield on the 10-year Treasury continues to come under pressure, and the resulting flattening yield curve does not bode well for the bread-and-butter “carry trade” for banks, nor does it say anything great about growth and inflation expectations in the medium term.
With this in the back of our minds, let us once again work through both the nearer- and longer-term charts of Bank of America.
BAC Stock Charts
The multiyear weekly chart remains in as bullish a posture as it was on Nov. 12. A series of higher lows are all pushing against the horizontal resistance line that stretches back to 2008.
Through this lens, we must ask whether 2015 could be the year when large banking stocks outperform the broader market. The chart of BAC stock, at least, would support this notion.
Note also that since bumping into lateral resistance (black horizontal line) in March, Bank of America’s shares have been coiling up below this line of resistance, which ultimately stands a good chance of releasing the stock higher. As such, I suspect BAC stock for the most part might be better to hold than to trade, although one could trade “around” a core long position (i.e., take partial profits on a long position and add to it again on dips).
On the daily chart, we see that BAC stock managed to work its way back up to the March highs on Monday, and on a daily closing basis, Bank of America actually marginally surpassed this mark. Much as I discussed on Nov. 12, that dip into the mid-teens was indeed a buy as the stock on Dec. 16 bounced off its rising 100-day simple moving average (blue line).
From here, while BAC stock could again be somewhat overbought in the near-term, those that bought the Dec. 16 dip could consider taking partial profits so as to add to the long position again on any weakness. Through a multiweek/multimonth lens, I still see Bank of America moving toward the $19-$19.50 area for now.
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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.
