Bank of America Corporation (BAC) is the second largest of the four "too big to fail" money center banks, and it reported first quarter results that beat analysts' earnings per share estimates. The stock bounced around breakeven in pre-market trading.
Shares of the bank closed Monday, April 15, at $29.84, up 21.1% year to date and in bull market territory up 31.7% since trading as low as $22.66 on Dec. 24. The stock set its cycle intraday high of $33.05 back on March 12, 2018, and is 9.7% below that high.
Bank of America ended 2018 with total assets of $1.8 trillion, down slightly from $1.814 trillion at the end of the third quarter. This is a sign that the bank is in cost-cutting mode, which translates to a slight miss on revenue in the first quarter. A drag for the bank was tough conditions on securities trading. Consumer activity was cited as solid.
The daily chart for Bank of America
The daily chart for Bank of America shows a 52-weeek high of $31.91 set on Aug. 8. Note that a "death cross" formed on Oct. 16, when the 50-day simple moving average fell below the 200-day simple moving average, indicating that lower prices would follow. This tracked the stock to its Dec. 24 low of $22.66.
The 2018 close of $24.64 was an important input to my proprietary analytics. This resulted in an annual value level of $24.07, which provided a buying opportunity on Jan. 2. Another result was a semiannual pivot at $26.66, which was a launching level for a price gap higher on earnings reported on Jan. 16. The low of $26.61 on March 25 filled the price gap and provided a buying opportunity on March 25. The close of $27.59 on March 29 was another important input to my analytics and resulted in a monthly value level for April at $25.49 and a quarterly risky level at $31.31.
The weekly chart for Bank of America
The weekly chart for Bank of America is positive, with the stock above its five-week modified moving average of $28.93. The stock is also above its 200-week simple moving average, or "reversion to the mean," at $22.80. The last test of the "reversion to the mean" came during the week of Sept. 30, 2016, when the average was $15.12. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 77.49 this week, up from 72.28 on April 12.
Trading strategy: Buy Bank of America shares on weakness to the 200-day simple moving average at $28.65 and add to positions on weakness to its semiannual pivot at $26.66. Reduce holdings on strength to its quarterly risky level at $31.31.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.