Bank of America Corporation (BAC) shares rallied more than 2% to the highest high since early August in Wednesday's pre-market session after the company beat third quarter profit estimates by $0.07 and reported in-line revenues. Even so, revenues rose just 0.3% year over year, highlighting a tough banking environment held back by falling interest rates, trade tensions, and subdued capital investment.

The uptick for Bank of America comes after positive action by JPMorgan Chase & Co. (JPM) following its Tuesday report, with both banking giants setting a bullish tone for the start of earnings season. However, similar buy-the-news reactions in prior quarters have failed to gain traction, raising doubts about taking exposure in a cyclical sector that has struggled to gain ground since President Trump fired the first shot in the trade war in January 2018.

In addition, both stocks are flashing strongly bearish volume divergences, indicating that gains posted since mid-summer lows have lacked committed buying interest. This is a common scenario in failed breakouts that trap trend followers, often just a session or two after rallies hit new highs. As a result, bulls need to watch volume levels closely if these issues trade even higher in coming weeks, looking for rapid improvement in accumulation readings.

BAC Long-Term Chart (1989 – 2019)

BAC
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A multi-year uptrend topped out at a split-adjusted $13.75 in 1989, giving way to a steep decline that found support under $5.00 in 1991. Bank of America stock returned to resistance two years later and traded sideways into a 1995 breakout that gained considerable traction into the 1998 high at $44.22. That peak marked the highest high for the next six years, ahead of an orderly correction that ended in the upper teens in December 2000.

The stock returned to the prior high in 2004 and broke out, entering a shallow uptrend that ended in the mid-$50s in the fourth quarter of 2006. It fell into the 2000 low in the third quarter of 2008 and broke down, posting catastrophic losses before bottoming out at the lowest low since 1982 in March 2009. A strong bounce into the new decade stalled in the upper teens, failing to recoup the vast majority of bear market losses.

A secondary selling wave tested the low successfully in 2012, while a healthy uptick into 2014 stalled before reaching the prior high. The stock struggled to add points until the 2016 presidential election when a sector-wide breakout ignited the strongest gains of the decade, ending at a 10-year high in the lower $30s in March 2018. A series of lower highs since that time has drawn a trendline that has come back into play after this morning's upbeat report.

The monthly stochastics oscillator crossed to the buy side at the oversold level in May 2018, generating a complex pattern that has now carved four waves. This is a bullish set-up because odds favor a fifth wave into the overbought zone, perhaps in conjunction with a trendline breakout. Even so, complex resistance into the mid-$30s could slow or stall progress unless volume readings improve substantially in coming weeks.

BAC Short-Term Chart (2017 – 2019)

BAC
TradingView.Com 

The on-balance volume (OBV) accumulation-distribution indicator highlights this technical headwind, topping out well ahead of price in March 2017. It has failed multiple breakout attempts in the past two and a half years and is now situated near a two-month low, following six months of orderly distribution. A series of higher than average volume rally days will be needed to overcome this sluggish pattern, which is a tough task in an adverse banking environment.

Meanwhile, a rally above $31 would signal a trendline breakout, opening the door to a test of the 2018 high at $33.05. That would be a great time to check out accumulation readings once again because the stock will face even stronger resistance after mounting the barrier, with the .618 Fibonacci retracement of the 2008 crash situated less than two points higher. A much bigger basket of committed buyers will be needed at that time to survive a reversal.

The Bottom Line

Bank of America stock has rallied to resistance after an upbeat quarter but will need heavy volume support to sustain higher prices.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.