The rally in Bank of America Corp (NYSE:BAC) has been impressive. So much so that the temptation to short BAC stock is too great to pass up.
Consensus on Wall Street is that banks under a Trump presidency should flourish to even higher highs. Add to it the fact that we are in a Federal Reserve rate hike cycle and you have a foolproof investment thesis. Therein lies the conundrum.
I get the bullish logic, but I lack the faith. I don’t think that there will be a switch that flips in January suddenly giving bank stocks the floor lost in 2008. BAC stock is now just below the level that was the trap door during the financial debacle that crippled the globe.
Last week, BAC reported a decent quarter, but Wall Street yawned with a mild upside poke. JPMorgan Chase & Co. (NYSE:JPM) also reported, and it clobbered expectations, yet JPM stock barely budged. Usually, when a stock or a sector can’t rally on great news then the bulls may be tired. This week’s reports are not starting well either, with Morgan Stanley (NYSE:MS) falling on another beat performance.
That’s why I’m banking (pun intended) that the sector will be pressured from lackluster reactions to earnings reports from MS or Goldman Sachs Group Inc (NYSE:GS).
Technically, this would be BAC’s sixth major bout with this price level. Twenty years ago, BAC stock broke out from $24 per share. In the following ten years, bulls successfully defended it twice, so it served as support. In 2008, $24 was lost and it’s not until now that BAC stock is this near to it again.
Every great champion needs to rest. So I will make a small bet that BAC stock may not get the oomph it needs to power through $24 per share. Luckily, the options markets allow me to structure trades with small risks to capture the slip.