The post-Brexit price action in stocks has not been for the faint of heart. Major indices in Europe and the U.S., after an initial drop last Friday and this Monday, have since come roaring back, punishing anyone who made bearish bets near the selloff lows. Bank stocks such as Bank of America Corp (NYSE:BAC) are right in the thick of this — BAC stock and others took a smack, but have bounced over the past two trading days.
Bank of America is also enjoying a pop early this morning on a dividend increase and buyback announcement following its pass grade on a federal stress test. However, amid all this, I see a renewed shorting opportunity taking hold in BAC stock.
On June 15, I mused that in the near-term, the risk-reward calculation favored getting out of short-side exposure in BAC shares as my initial downside target in the stock was reached. Furthermore, I didn’t want to be exposed to any erratic post-Brexit moves. Since then, BofA has indeed traded in a volatile fashion, and after flushing lower last Friday and on Monday, BAC stock bounced. In the process, it has once again reached a better shorting point.
As a side note, second-quarter earnings season is just around the corner, and Bank of America is scheduled to report its latest numbers on July 18. So I suggest backing out of any trades in BAC stock before that date rolls around.
BAC Stock Charts
Looking at the multiyear weekly chart for Bank of America, much remains the same from my last update. Namely, the previous horizontal area of support as marked by the black line is still the major overhead area of resistance.
Through that lens, and also considering the weak macro environment and still-falling bond yields (blue line on bottom part of chart), BAC stock looks poised to retest its February lows in coming weeks or months.
On the daily chart, we see that since the Brexit vote last Friday, BAC shares have seen two big down-gaps, one of which has been filled thanks to the sharp two-day 10% snap-back rally. While the stock may see some backing and filling in coming days, in the intermediate-term, nothing has changed.
The aforementioned bigger-picture bearish backdrop remains intact, and after Bank of America dropped out of the uptrending channel (two red-dotted parallels) and below the yellow 50-day moving average, shares still are trending lower in the near-term.
Active investors should consider re-entering some shorts in BAC stock at $13.50 for a move back toward the $11-$11.50 area in coming weeks, while a weekly close above $14.20 should serve as stop-loss signal.
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