Bank of America Corporation (BAC) is trading lower by about 3% in Thursday's pre-market session despite beating top- and bottom-line second quarter 2020 estimates. Revenue fell 3.5% year over year to $22.3 billion, but credit loss provisions rose to $5.1 billion, with a $4.0 billion reserve build due to uncertainty as a result of the COVID-19 pandemic. Net interest income fell 11% due to lower interest rates that have made it harder for commercial banks to book profits.
The reaction to second quarter banking sector earnings has been less than spectacular this week, with Dow component JPMorgan Chase & Co. (JPM) the only one of the four big commercial banks to post even modest upside. This apathy reflects growing fears about a long and protracted recession that will dampen business activity for months or years to come. The group is highly cyclical due to this connection, raising the odds that many components will eventually retest their first quarter lows.
Bank of America Long-Term Chart (1991 – 2020)
A steep decline bottomed out at a split-adjusted $4.22 in 1991, giving way to an uptick that completed a cup and handle breakout in 1995. The stock posted impressive gains into the 1998 high at $44.22 and reversed when the Asian Contagion reached its peak in 1998. That marked the highest high for the next six years, ahead of a complex downtrend that found support in the teens in December 2000.
The stock broke out above the 1998 high in 2005, booking limited gains into the fourth quarter of 2006, when it topped out in the mid-$50s. The subsequent pullback accelerated into a near death spiral during the 2008 economic collapse, finally coming to rest at a multi-decade low in the deep single digits in March 2009. The subsequent bounce stalled in the upper teens just one year later, establishing a barrier that took another six years to overcome.
A breakout after the 2016 presidential election caught fire, making rapid progress into the March 2018 high at $33.05. Price action carved a bullish inverse head and shoulders pattern into October 2019 and broke out once again, topping out less than three points above the 2018 peak in January 2020. The stock plunged with world markets about seven weeks later, failing the breakout before finding support at a three-year low in the upper teens.
Bank of America Short-Term Chart (2018 – 2020)
The on-balance volume (OBV) accumulation-distribution indicator completed a round trip into the March 2017 high (red line) in December 2019 and broke out. It turned tail in February, failing the breakout before dropping to a 15-month low in April. Buying interest since that time has made limited progress, recouping about half of the prior downside. This is proportional to price action in the first half of 2020, offering neither headwind nor tailwind to Bank of America investors.
The rally into January 2020 reversed at the .618 Fibonacci retracement of the 2008 through 2009 bear market, while the bounce into June 2020 reversed at the .618 Fibonacci retracement of the first quarter decline. This symmetry highlights a bearish long-term outlook that could eventually trigger a breakdown through support in the upper teens. Conversely, it will now take a buying impulse into the low $30s to improve the deteriorating technicals.
The Bottom Line
Bank of America stock has failed to stir buying interest after a mixed second quarter 2020 earnings report and has sold off below the 50-day exponential moving average (EMA) ahead of Thursday's opening bell.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.