Bank of America Corporation (BAC) reports earnings next week, with analysts expecting the company to report fourth quarter profits of 64 cents per share (EPS) on $22.6 billion in revenue. The financial giant beat third quarter profit and revenue estimates in October, triggering a two-day bounce followed by a breakdown to new lows, suggesting that market players will be reluctant to commit speculative capital regardless of quarterly metrics.

The banking sector has been in full retreat for months now, reacting to a series of Fed rate hikes as well as deep skepticism about U.S. economic growth into the next decade. Bank of America stock has been pummeled since topping out in March 2018, dropping nearly 30% to the lowest low since September 2017. Renewed optimism into 2019 has generated a sturdy bounce off long-term support levels, raising the odds for additional gains that could reach the upper $20s.

BAC Long-Term Chart (1990 – 2018)

Long-term technical chart showing the share price performance of Bank of America Corporation (BAC)

The stock fell to a two-year low at a split-adjusted $4.22 in October 1990 and turned sharply higher, entering a strong uptrend that ended in the mid-$40s during the Asian Contagion in 1998. It sold off into the end of 2000, finding support in the upper teens, while the subsequent uptick took four years to complete a round trip into the prior high. A breakout into 2005 made limited progress, despite real estate and financial bubbles, stalling in the mid-$50s in the fourth quarter of 2006.

A steep decline reached 2000 range support in August 2008, yielding a strong recovery wave, followed by a historic breakdown that dumped the stock to a 13-year low at $2.53. It bounced within 14 cents of $20.00 in 2010, marking a steep resistance level that took nearly seven years to overcome. Breakout attempts in 2014 and 2015 failed during this period, while declines carved higher lows near $5.00 and $11.00.

A breakout following the 2016 presidential election caught fire, generating two rally waves into March 2018's nine-year high at $33.05, followed by a downturn that picked up steam into late December. The sell-off has reached the .382 retracement level of the three-year downtrend into 2009, which has aligned with the 50- and 200-month exponential moving averages (EMAs), marking long-term support that should contain the downside through the first quarter.

However, the monthly stochastics oscillator diverges from this positive view, grinding through the second phase of a sell cycle that started in March 2018 (shaded area). As a result, battered shareholders may have to endure a selling climax that undercuts support or volatile whipsaws in the low to mid-$20s. Identifying the lowest-risk entry could be difficult with this technical conflict, so traders should tread lightly until the indicator hits a deeply oversold level or crosses into a new buy cycle.

BAC Short-Term Chart (2016 – 2018)

Short-term technical chart showing the share price performance of Bank of America Corporation (BAC)

In addition, the three-year price pattern suggests that 2019 upside will eventually fail, yielding even lower prices. The stock carved an Elliott five-wave rally set between January 2016 and March 2018, while the decline into December completed a 100% retracement of the last rally wave. This bearish structure raises the odds that the long-term uptrend has come to an end and that the bounce will fail after working off oversold technical readings.

December's unfilled gap between $25.50 and $26.75 marks a logical upside target, now perfectly aligned at 50-day EMA resistance. The stock has failed to hold moving average support since September, but the January effect might add modest buying pressure that reaches the 200-day EMA, which ended November and December rally attempts. In turn, the price zone between the 50% retracement at $27.50 and $28 could offer low-risk short sales as well as a good spot for investors to exit long-term positions.

The Bottom Line

Bank of America stock has reached deep support and could bounce after Jan. 16 earnings. However, Elliott wave analysis predicts that the long-term uptrend has come to an end, setting the stage for even lower prices later in 2019.

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