Bank of America Recovery Appears to Be Stalling

Bank of America Corporation (BAC), the third largest of the four "too big to fail" money center banks, reported quarterly earnings before the opening bell on Wednesday, Jan. 17. Results were mixed and included a $2.9 billion write-off due to the tax law. The stock did not manage to set a new 52-week high during pre-market trading.

All four "too big to fail" money center banks have now reported fourth quarter earnings. Each bank reported write-offs related to the new tax law, but they see positive benefits in the long term from the low 21% corporate tax rate. Investors beware: these benefits may now be priced into future earnings.

Bank of America stock closed Tuesday at $31.24, up 5.8% year to date and in bull market territory at 41.9% above its 52-week low of $22.01 set a year ago today. The stock set its multi-year intraday high of $31.79 on Jan. 16, 2018.  According to FDIC data, Bank of America ended the third quarter of 2017 with $1.75 trillion worth of assets on its balance sheet, which equates to 10.1% of the entire banking system. This represents a year-over-year gain of 3.9%, so this "too big to fail" bank keeps getting bigger. (See also: BofA Net Profit Slumps on $2.9 Bln Tax Charge, Adjusted Income Beats.)

The daily chart for Bank of America

Daily technical chart showing the performance of Bank of America Corporation (BAC) stock
Courtesy of MetaStock Xenith

Bank of America has been above a "golden cross" since Sept. 7, 2016, when the stock closed at $15.70. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average and indicates that higher prices lie ahead. The 50-day simple moving average was last tested on Nov. 15, when this average was $25.96. The 200-day simple moving average was last tested on Sept. 12, when this average was $23.50.

The horizontal lines show that the stock is above its monthly, quarterly, semiannual and annual value levels of $28.80, $26.90, $25.71 and $20.93, respectively. Not shown is my weekly risky level of $32.24.

The weekly chart for Bank of America

Weekly technical chart showing the performance of Bank of America Corporation (BAC) stock
Courtesy of MetaStock Xenith

The weekly chart for Bank of America is positive but overbought, with the stock above its five-week modified moving average of $29.63. The stock is well above its 200-week simple moving average at $18.55, which is also the "reversion to the mean," last tested 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 93.92 this week, moving further above the overbought threshold of 80.00 and now above 90.00 as an "inflating parabolic bubble."

Given these charts and analysis, my strategy is to buy Bank of America on weakness to my monthly value level of $28.80 and to reduce holdings on strength to my weekly risky level of $32.24. (For more, check out: Bank Rally Could Escalate in the First Quarter.)

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