Surprise leadership from Bank of America (NYSE:BAC) and other big banks kicked off the trading week. But can it last? Let’s take a look at what’s happening off and on the price chart.
On a session in which the S&P 500 rose a scant 0.05%, BAC stock and peers JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC) and Goldman Sachs (NYSE:GS) put together a strong performance. Bank of America took the lead with its standout gain of 3.3%. JPM, WFC and GS stock finished up on either side of 2.5%.
Behind the strength, BAC was one of the day’s presenters at an investors’ conference. But the reaction in shares wasn’t about Bank of America whetting investors’ appetites with an unusually upbeat forecast. Monday’s bid was more about a relief rally off and on the price chart.
Wall Street’s bid in BAC stock happened on the back of low, single-digit investment banking revenue growth for the third quarter. With the unit having underperformed many of its peers, the year-over-year increase due to the bank’s commitment to regaining market share caught investors attention. As well, Chief Operating Officer Tom Montag noted a good performance for BAC’s equity trading business thus far this quarter.
Also of benefit — a spike in long-term yields relative to short-term rates supports BAC stock’s lending business. The action in Treasurys has occurred amid reports of an October meeting between the U.S. and China, which in turn has eased fears over the two country’s trade war and a larger global recession.
BAC Stock Weekly Chart
If the sum total of supports behind BAC stock’s rally on Monday and Tuesday’s bid in shares doesn’t sound like a lot, it’s because in the scheme of things, it likely isn’t. But looked at on BAC stock’s price chart, Wall Street’s resolve to leave no stock behind makes appreciable sense.
The plain and simple reality is BAC stock has been a laggard the past couple years. A mostly lethargic congestion pattern has consumed Bank of America since 2018. BAC stock has been wrestling with the 62% retracement level tied to the stock’s 2006 – 2009 Fibonacci cycle which saw shares go from an all-time-high to a multi-decade low.
This difficulty is in stark contrast to leading Dow Jones Industrial Average constituents Microsoft (NASDAQ:MSFT) Home Depot (NYSE:HD), Visa (NYSE:V) or McDonalds (NYSE:MCD). But it gets worse for Bank of America.
As the provided weekly chart illustrates, BAC stock’s technical ennui has resolved itself in a series of lower highs since early 2018. Even the Dow Jones’ historic bull market has managed to claw its way to a narrow higher-high pattern over this period.
But Bank of America’s difficult behavior could ultimately work in its favor. Today’s buying efforts could turn into a larger rotation where BAC’s relative weakness works its way into a period of outperformance. The million dollar question is “Will it?”
The Bottom Line on BAC Stock
If you’re inclined to buy BAC shares today, I’d advise setting a stop-loss below $27.57. This exit is tied to the three-day low in shares and would also mark a second violation of the 62% retracement level and the 200-day simple moving average. In our view there is sufficient evidence that such a move would avoid further price congestion — and possibly anything worse.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.