Trade of the Day: BAC Stock Fails at a Crucial Juncture

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Bank of America Corp (BAC) — BAC stock fell 1.5% on Thursday, as the financial sector led the broader market lower. In fact, as a risk-off tone swept through the market, it pushed all sectors of the S&P 500 except consumer staples into the red for the day. We also saw bonds rally and yields drop, which typically isn’t good for banks.

Thursday’s sell-off in BAC stock confirmed a bearish reversal at a crucial resistance area that I have been watching for a number of weeks. Shares now look set to fall further, presenting an opportunity for traders.

Below I plotted BAC stock along with ProShares UltraShort Lehman 20+ Yr (ETF) (TBT), which represents the longer end of the bond yield curve. It’s clear that the decline in yields isn’t helping banking stocks.

BAC Stock vs TBT Chart
Click to Enlarge

Note that in 2014 and 2015, BAC stock hit resistance around $18, which stretched back to 2010. In January, shares collapsed below a multiyear support area. The reaction rally off the February lows brought BAC stock back into a former support zone, which now looks to be acting as resistance.

Zooming in on the daily chart, we see that the rally off the February lows has taken place in a classic A-B-C countertrend move.

BAC Stock Chart - Daily
Click to Enlarge

Earlier this week, the MACD momentum oscillator reached severely overbought readings. On Wednesday, BAC stock staged a failed intraday rally with shares closing near the day’s lows. Thus, Thursday’s 1.5% drop is considered follow-through selling, and also took shares below their 8-day simple moving average for the first time since mid-April.

Traders can look to leg into short positions or buy cheap put options or put spreads. My first downside target is in the $14 area, with a secondary target of $13.

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As of this writing, Serge did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2016/04/bank-america-corp-bac-stock-trade-day-2/.

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