Shares of Bank of America Corp (NYSE:BAC) are now higher by more than 25% year-to-date and looking strong. Helped by a spike in interest rates — as a result of a marginally more hawkish Federal Reserve and other G4 central banks — BAC stock has staged a technically sound breakout that could move higher.
Like I always say in this here column, without the proper perspective on the markets any given trader or investor over time will likely stand to give back a large chunk of his or her gains.
As such, the current shift in central bank posturing is crucial for investors and trades focusing on banking and other financial stocks. Over the past days, weeks and even months we have heard from a multitude of important central banks that they are slowly shifting to a more hawkish tone, if only moderately so.
On the multi-year weekly chart, we see that BAC stock (top part of the chart) dropped sharply along with the rest of financial companies and indeed the broader market during the 2008/2009 financial crisis.
After years of “basing,” BofA blasted higher following the U.S. election, and by so doing scored a technical breakout. Upside momentum however quickly again began to wane and the stock didn’t do much for bullish investors from early March until this past September.
After a prolonged period of rest BAC stock in September finally took the next leg higher, which now looks to have further upside.
BAC Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
At the bottom of the chart, in blue, I plotted a ratio chart of the Financial Select SPDR (NYSEARCA:XLF) versus the S&P 500’s SPDR S&P 500 ETF Trust (NYSEARCA:SPY).
On this chart we see that the relative strength of financial stocks as a group has improved versus the broader large-cap market and indeed now looks giddy to break higher. In other words, BAC stock could be in for a period of not only absolute but also relative strength in the broader picture.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
Moving on to the daily chart we see that as a result of the September breakout of the multi-quarter consolidation phase (black lines), the BAC stock’s intermediate-term moving averages have all begun to curl up again, which is constructive for the time being and should all else being equal offer a layer of technical support.
After the September breakout got overheated BAC stock in the second half of October started to rest again. While the stock remains in this near-term resting period, odds look favorable that ultimately a continuation-move higher sets in toward year-end.
Active investors and traders could look to buy BAC around current levels in the mid to high $27s for a next upside target at $29, followed by possibly $30 — although I do not expect this move to take place in a straight line.
Check out Anthony Mirhaydari’s Daily Market Outlook for Nov. 3.
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