Bank of America Corporation (BAC) is the second largest of the four "too big to fail" money center banks, and it reports second quarter results before the opening bell on Wednesday, July 17. Bank of America stock closed the first half of 2019 at $29.00 on June 28, which became a key input to my proprietary analytics. The only level left over from the first half is its annual pivot, which is now a value level at $24.07. The daily chart shows a "golden cross," and the weekly chart has been positive since the week of June 28, when the stock closed at $29.00.
Fundamentally, Bank of America is reasonably priced with a P/E ratio of 10.85 and a dividend yield of 2.04%, according to Macrotrends. Analysts expect the bank to post earnings per share (EPS) of 70 cents to 73 cents when it reports results on Wednesday morning. This bank has a streak of 12 consecutive quarters of beating EPS estimates on the line. Keep an eye on the bank's comments on cost-cutting matters. Earnings drag could come from tough conditions in securities trading, but consumer lending should solid.
In the long term, Bank of America is consolidating a bear market decline of 31% from its multi-year intraday high of $33.05 set during the week of March 16, 2018, to its Dec. 24 low of $22.66. The stock is up 19.5% year to date and in bull market territory at 30% above the Dec. 24 low. The stock set its 2019 high of $31.17 on April 29.
The daily chart for Bank of America
The daily chart for Bank of America shows a squiggly "golden cross" formation confirmed on March 25, when the 50-day simple moving average (SMA) moved above the 200-day SMA to indicate that higher prices lie ahead. This has not been a successful signal yet, but the stock is above its 50-day and 200-day SMAs now at $28.55 and $28.17, respectively.
The 2018 close of $24.64 was an important input to my proprietary analytics. Its annual value level remains at $24.07. The close of $29.00 on June 28 was another input to my analytics and resulted in the following key levels. The monthly value level for July is $24.80. Semiannual and quarterly risky levels for the second half and the third quarter are $31.16 and $31.90, respectively.
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 $28.76. The stock is also above its 200-week SMA, or "reversion to the mean," at $23.50. 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 rose to 47.21 last week, up from 41.08 on July 5.
Trading strategy: Buy Bank of America shares on weakness to the 200-day SMA at $28.17, and add to positions on weakness to the monthly and annual value levels at $24.80 and $24.07, respectively. Reduce holdings on strength to the semiannual and quarterly risky levels at $31.16 and $31.90, respectively.
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 annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on June 28. The quarterly level was also changed at the end of June.
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.