Bank of America Corp Falters With the Financials

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Stocks are slip sliding away yesterday and this morning, and nowhere is the weakness more apparent than financials. Bank of America Corp (NYSE:BAC) is leading the decline falling as much as 3.9% and ending last night off 1.3%. If sellers press their advantage, bearish BAC trades could be worth a shot.

To set the stage, let’s first analyze the Financial Select Sector SPDR Fund (NYSEARCA:XLF). She’s a hot mess with technical deterioration galore. For starters, at yesterday’s low of $26.46, XLF is now 12.8% off its highs. Consider it a new low water mark for the ongoing correction.

Perhaps the most significant takeaway from yesterday’s action is the financial sector’s breaching of the 200-day moving average.

Source: OptionsAnalytix

Many chart watchers view this as a demarcation zone separating the bulls’ pen from the bears’ den. Consider this entrance to the bears’ turf yet another sign of souring sentiment for bank stocks.

And that brings us to BAC, which has shareholders running scared. The $29 level proved a pivotal threshold halting the last two nosedives. Unfortunately, it’s now melting faster than flies in a furnace. While buyers are hoping this turns into a false breakdown, any rallies from here will remain suspect.

Source: OptionsAnalytix

Ever since BofA breached its 50-day moving average in mid-March, all bounces have proved fleeting.

The BAC Pain Trade

With BAC earnings now in the rearview mirror, option premiums have been brought low. Its implied volatility rank is 16%, and that suggests long puts aren’t a bad buy here. To position for further weakness, purchase the July $30 put for around $1.60.

The max loss is limited to the initial $1.60 cost. To lose the entire nut, however, you’d have to ride all the way to July expiration and have BAC sitting above $30. If you wanted to minimize the damage by exiting at the first sign of the trend strengthening, then exit on a break above $30.50.

Consider the 200-day moving average at $28.15 your first target.

As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.

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Article printed from InvestorPlace Media, https://investorplace.com/2018/05/bank-of-america-corp-bac-breaks-200-day-moving-average-as-financials-falter/.

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