Commercial banks have attracted steady interest since August, underpinned by trade optimism and a growing conviction the 10-year economic expansion will extend into the next decade. Dow component JPMorgan Chase & Co. (JPM) has lifted to a new high during the advance, but many troops could follow the general, posting bull market highs in 2020. Bank of America Corporation (BAC) has a perfect opportunity to lead the charge because it's now testing 2018 resistance.
Sector funds and indices are still fully range bound despite buying pressure, indicating that many commercial banks aren't participating in the uptick. Not surprisingly, foreign-held companies continue to struggle, keeping a lid on the broad advance. It's another story for America's "too-big-to-fail" banks, with Citigroup Inc. (C), SunTrust, Banks Inc. (STI), and PNC Financial Services Group, Inc. (PNC) also nearing tests at last year's highs.
Even so, a few ill-timed decisions in Washington, DC, could put a lid on gains or stop the nascent uptrend dead in its tracks. An escalation in tariffs or costly retaliation from the other side of the Pacific could do instant damage to the American economy, generating a broad-based decline and a wave of failed sector breakouts. However, the trend is our friend at least for now, predicting much higher prices in coming months.
BAC Long-Term Chart (1990 – 2019)
A steep downtrend posted a multi-year low at a split-adjusted $4.47 in 1990, giving way to a powerful uptrend underpinned by the silicon chip and new markets opened by the fall of communism. The advance gathered strength into 1998, when the Asian Contagion signaled a long-term top in the low $40s, while the subsequent reversal marked the first leg in a downtrend that accelerated after the internet bubble burst in early 2000.
The sell-off bottomed out in the low $20s in December 2000, giving way to a bounce that took more than four years to complete a round trip into the prior high. The stock broke out in 2005 but made little headway until the second half of 2006, when committed buyers supported a steady uptick into the all-time high at $55.08. It pulled back from that level in 2007 and collapsed in 2008, spiraling lower in a historic freefall that ended below $3.00 in February 2009.
A recovery wave into the second quarter of 2010 fizzled out in the upper teens, marking resistance that wasn't breached for the next six years. A steep decline through 2011 posted a higher low near $5.00, while buying interest into 2014 stalled just two points below the prior peak. It posted a second higher low in 2016, slowly building strength ahead of a breakout following the presidential election.
Outlook Into 2020
That rally leg ended in January 2018 after crossing the 50% retracement of the bear market decline. The stock has been testing that level for the past 22 months, carving a rounded correction that should support a breakout in coming months. It's now trading less than 25 cents under that resistance level after briefly posting a new high earlier this month, highlighting the proximity of a bull market advance that could reach the $40s.
The monthly stochastics oscillator supports bulls at this time, crossing into a buy cycle from the oversold zone in June 2018 and carving a complex pattern that should generate a final up leg into the overbought zone. However, it's wise to expect a breakout to get tested for several months because the first rally wave will run immediately into harmonic resistance at the .618 Fibonacci sell-off retracement level at $35.
The Bottom Line
Bank of America stock looks set to break out to a bull market high in coming weeks, underpinned by unusual strength in the banking sector.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.