Bank of America Corporation (BAC) stock has been range bound through most of 2019, oscillating between support in the mid-$20s and resistance at $30. It has just lifted back to range resistance for the third time this year, once again raising hopes for a breakout that rewards patient shareholders. It's hard to rule out anything in a market environment that has been full of surprises, but a renewed downturn seems more likely, due to multiple headwinds.

First and foremost, the Federal Reserve is reducing interest rates at a rapid pace, narrowing the overnight spread that commercial banks need to increase profits. It's no accident that the stock booked the strongest performance in years in 2017, with tax cuts by the new president expected to trigger a surge in interest rates. The Fed headed down that path, but the rising rate cycle was aborted as soon as the trade war threatened to drop the U.S. economy into a recession. 

Much of that fear has been discounted in 2019 due to the relentless strength of monthly economic data. Even so, U.S. corporations have been making few capital investments that require borrowing from commercial banks, instead using excess capital to buy back stock. Economic downturns in other first world countries aren't helping, keeping a lid on debt that translates into healthy banking profits.

Even so, there are reasons to be optimistic about Bank of America's future. The company has done a great job responding to this decade's challenges, rebuilding a business that got torn apart during the 2008 economic collapse. And automation is coming to the rescue as well, with much of the financial industry's heavy lifting now done by algorithms, rather than traders or sales people who expect big year-end bonuses.

BAC Long-Term Chart (1995 – 2019)

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

The stock mounted resistance at the 1987 high in 1995 and entered a strong trend advance that topped out in the mid-$40s during the Asian Contagion in 1998. It sold off in two waves into the new millennium, finding support at a five-year low in the upper teens in early 2001. A steady uptick off that level completed a round trip into the prior high in 2003, ahead of a 2004 breakout that posted impressive gains into November 2006's all-time high at $55.08.

It plunged with world markets during the bear market in 2008 to 2009, dumping to the lowest low since 1982 and bouncing to $19.86 in 2010, marking the highest high for the next seven years. A downturn into 2012 posted a higher low, setting the stage for a slow-motion uptrend that stalled three points under the prior high in 2014. A second higher low in 2016 presaged much better times, generating healthy buying interest that completed a major breakout after the presidential election. 

The uptrend ended in March 2018 after the stock pierced the 50% retracement of the bear market decline, generating sideways action that has crisscrossed the harmonic level repeatedly in the past 18 months. This is a constructive but neutral pattern, indicating a stable balance between buyers and sellers. Unfortunately for bulls, the pattern could persist for years without a catalyst, like a definitive trade deal with China.

The monthly stochastics oscillator crossed into a buy cycle near the oversold level in June 2018 and is still engaged in that uptick. Two buying waves within the signal (gray box) predict a third and final impulse, suggesting that the stock could rally above the blue line into year end and test the 2018 high. Just keep in mind that tough resistance above that barrier predicts slow gains rather than a quick assault on multi-year highs.

The Bottom Line

Bank of America stock is testing 2019 range resistance and could break out in the fourth quarter, reaching the 2018 high.

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