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Is it Time to Bank on BAC?

BAC isn't for the timid trader.


Everyone seems to hate Bank of America (NYSE:BAC) these days. The stock plunged about 6% in Wednesday trade, and in the first hour of Thursday’s session, BAC is down another 3.6%. The catalyst for the latest sell-off was the banking giant’s earnings report. The company’s Q1 EPS of 20 cents fell short of expectations, although revenue in the quarter of $23.7 billion managed to best the consensus forecast.

Adding some fuel to the selling fire in BAC was the downbeat market mood that saw stocks tumble across the board. Then there was new survey results released from the Aspen Institute’s Better Banking Project titled, “The DNA of Trust in Banking,” which ranked Bank of America as one of the least trusted names in banking based on helpfulness to consumers.

BAC2-4-18-13So, does this confluence of negatives mean BAC is a great short candidate for traders?

The short answer is no.

In fact, the pullback in BAC could be seen as a good entry point for intrepid traders looking to buy the dip in a stock that’s has been on fire over the last year, but that now has cooled about due to a variety of factors—many of which have nothing to do with the fundamentals in the stock.

Is it true that BAC has issues with earnings growth and legal issues with mortgage settlements? Yes. However, it’s also true that the company has a strong balance sheet, plenty of cash on hand and healthy cash flow.

Yet perhaps the best thing about a potential BAC trade at these levels is that if the market settles here and resumes the upward trajectory that just a few weeks ago sent the Dow to multiple all-time highs, BAC will be one of those stocks that institutions will run back into.

That possibility could send the shares right back through resistance at the 50-day moving average, and back into new high territory in a matter of weeks. If BAC can move to beyond its recent closing high of $12.78, it would mean a gain of more than 13% for traders who get in now.

Finally, just remember that if you do get in now, be sure to put a stop-loss order in about 8% below your buy price to cover you if the trading bias continues to the downside.

At the time of publication, Jim Woods did not hold a position in any of the stocks mentioned here.

Article printed from InvestorPlace Media,

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