If you take a look at the last 52 weeks, shares of Bank of America Corp. (BAC) and other financials had a great run through last March. Bank of America rallied more than 50% during that time period, and most of its gains came after the presidential election. Since March, the stock has stuck to a pretty narrow range, but now that stasis looks like it may be over, and Bank of America could be in for a fall.
On Tuesday, Bank of America shares broke below their 200-day moving average of $23.44 and dropped roughly three percent intraday. Now keep in mind that the overall market had a down day. The S&P 500 edged lower, and the Dow Jones Industrial average dropped more than 1%. Most would say the slide in Bank of America is understandable. To that, I will add that banking stocks overall performed worse than other stocks in their respective sectors.
Another factor catching my eye is the overall bearish pattern that looks to be developing on Bank of America. That pattern is called a head and shoulders, which indicates that an upward turn could be reversing. As you can see in the chart below, prices rose to $25.11 on July 6, (left shoulder) and then dropped back down and rose again to a higher high of $25.35 on Aug. 8. (the head). The last pop up on Sept. 1 could potentially form the right shoulder, which would complete the pattern, signaling the reversal.
The Bottom Line
If we are seeing a head-and-shoulders pattern, I would keep an eye on Bank of America's 200-day moving average. If shares continue to stay below $23.44, the stock could see a new six-month low of $22.07
For more institutional advice for the individual investor, please visit Allied Millennial Partners.
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