After my last write up about Bank of America (NYSE:BAC) stock in late March it rallied 12%. So the trade paid quickly. Bank of America stock has since given it back and repeated the process almost exactly the same way.
Today, the stock is falling with the rest of the global stock markets on rekindled fears of the global slowdown stemming from the U.S.-China economic war. This is an opportunity to re-buy Bank of America stock for another round.
Last week, the U.S. announced a new round of 10% tariffs on the rest of the Chinese imports. In retaliation, this morning we learned that China let its currency devalue to multi-year lows. This is to offset the tariffs’ impact on its economy.
Banks care more about the rates than the tariffs so their stock prices go for a ride while these jabs fly between the two nations. These are opportunities to stay with BAC stock and/or build long-term positions in it.
Bank of America Stock Is Falling Into Support
Bank of America stock is cheap. It sells at a price-to-earnings ratio of 10 and it will probably lower at the end of today.
It has fallen more than 4% today and right into a pivot zone. These tend to be support for BAC stock. It is also the 50% Fibonacci retracement which machine traders will care about and use to buy shares for martial bounces.
Buying BAC stock today seems scary because the whole stock market is falling and it seems like an abyss. But BAC is close to a bottom because its valuation is already cheap and it pays a 2.5% dividend to boot. So it shouldn’t continue to fall this precipitously without a specific reason.
The yield curve has taken a hit lately and that matters to banks. They borrow on the short rates to lend on the longer. When this relationship flips, then it becomes harder for them to make money.
But, the U.S. Federal Reserve is committed to keeping the U.S. economy afloat. So they will do whatever they can to not let the yield curve invert. Because if they don’t, then the U.S. economy would suffer an eventual recession. When banks don’t lend, businesses don’t grow.
While President Trump cannot force the Fed to cut rates, the Fed’s mandate is to watch over jobs and inflation. If the economy suffers, then jobs will undoubtedly also suffer. So Chairman Powell will have to act on that. They have enough tools that they can do that.
While I am optimistic about the BACK stock prospects, there is enough worry in the environment to warrant caution. So don’t load up on the stock, but you can start adding some to the portfolio knowing that it may not be the perfect bottom.
The BAC stock price is also approaching its yearly point of control, which should also act as support. So between this morning’s price and $28.20 is a support zone to watch.
This is also the level from which Bank of America stock had a rally that started June 28. So it has acted as support since then and is now getting tested again.
The March and June corrections both found footing just below $26 per share. I don’t believe that the December lows will come into play. This time it’s different since the Fed is on the side of stocks. Back then they were still committed to raising rates, but this time they are in cutting mode.
While there are no perfect trading setups, this BAC opportunity is good enough to at least start building a position in this great bank. They are now healthier than ever and are committed to financial engineering that will defend the stock price. They recently all passed the stress test so they have no regulatory restrictions on that front.