Some investors might feel Bank of America Corp (BAC) stock has finally received its technical “get out of jail card,” but the big picture suggests otherwise.
In fact, for short-term traders, it’s time to get bearish on Bank of America while there’s still unicorns and the like … and of course, lots of bulls on Wall Street.
BAC stock’s earnings last week featured a profit and sales decline compared to the year ago period. Not exactly inspirational, right?
The report also failed to beat Street top- and bottom-line forecasts, as market volatility and a difficult rate environment impacted results according to Bank of America’s CFO. Even less exciting, right?
Nonetheless, shares of BAC climbed 2.5% immediately following the announcement and have subsequently rallied to a net gain of 6%.
What’s behind the move? A previously incarcerated BAC stock trading sideways the past month and due for some technical catch-up certainly, by our estimates, played a hand.
It’s also easy enough to appreciate investors optimistically discounting a better operating environment for Bank of America, given the market’s current feel-good, “risk-on” persona.
As an aside, I’m pretty confident Bank of America could announce it’s giving away toasters with savings accounts and it would be cheered as inventive and cutting edge. Unfortunately for bullish investors, toast is looking nearly ready to serve on the BAC stock chart — and that could pose problems short-term.
BAC Stock Weekly Chart
Back in early February and near the market’s corrective low, we optimistically discussed a completion of Bank of America stock’s measured move from a bearish head-and-shoulders pattern.
Now, with BAC stock having rallied about 30% since Feb. 11, it’s time to revisit the topping formation for resistance and bearish positioning as shares establish a return move into the neckline.
The technical case for some backing and filling in Bank of America also has a 50% retracement calculated from the right shoulder and the very-long-term 200-week simple moving average acting as secondary resistance.
Bank of America Stock Long Put Strategy
With both overall market and Bank of America option premiums cheap right now, a slightly out-of-the-money long put for bearish positioning looks reasonably attractive. Reviewing the options board, the weeklys BAC May 27 $14 put is one to watch.
Currently priced for 32 cents, traders might look to pay a few pennies more in order to receive technical confirmation of a daily reversal candle and topping in shares of Bank of America.
Once positioned, “cheap” premium doesn’t mean to simply buy and hold this shorter-term and bearish Bank of America position.
Exiting if resistance fails is still a smart move in order to save capital against an unwanted population increase of unicorns, puppies and bulls.
As well, making profitable adjustments with the BAC long put if a more rare bear population makes its return also makes a good deal of sense — and likely added “cents” — with this short-term play.
Investment accounts under Christopher Tyler’s management currently own hedged BAC stock and option positions. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
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