Bank of America Corporation (BAC) is now the second largest of the four "too big to fail" money center banks after swapping positions with Wells Fargo & Company (WFC) at the end of the first quarter. Bank of America shares are above my semiannual pivot of $28.47 and below the 50-day and 200-day simple moving averages converging at $29.53 and $29.45, setting the stage for a "death cross" on a negative reaction to earnings.
A "death cross" cross occurs when the 50-day moving average falls below the 200-day moving average to indicate that lower prices lie ahead. Bank of America stock fell by 16.4% in a correction from a multi-year high of $33.05 set on March 12 to the 2018 low of $27.63 set on July 6. The stock closed Thursday, July 12, at $28.77, down 2.5% year to date, and is in correction territory at 13% below its March 12 high. The stock is 4.1% above its 2018 low of $27.63 set on July 6.
Analysts expect Bank of America to post earning per share between 56 cents and 63 cents when the bank reports second quarter earnings before the open on Monday, July 16. Our nation's second largest bank by total assets provides credit cards, asset management and other related services. The Wall Street consensus is that Bank of America is a solid turnaround story, but this notion is not shown on the daily or weekly charts, as the big banks peaked in the first quarter. When banks focus on increasing dividends and buyback programs and ignore the needs of Main Street, the big banks become trading vehicles, not long-term investments. (See also: Bank of America Stock Could Enter Steep Decline.)
The daily chart for Bank of America
Bank of America stock is below its 50-day and 200-day simple moving averages of $29.53 and $29.45, respectively, and a "death cross" will be confirmed on a negative reaction to earnings. The stock is above two horizontal lines, which are my semiannual pivot of $28.47 and my weekly value level of $27.38. The upside on a positive reaction to earnings is the monthly risky level of $31.97.
The weekly chart for Bank of America
The weekly chart for Bank of America is negative, with the stock below its five-week modified moving average of $29.07. The stock is well above its 200-week simple moving average at $20.39, 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 fall this week to 19.85, moving below the oversold threshold of 20.00.
Given these charts and analysis, investors should buy Bank of America shares on weakness to my weekly value level of $27.38 and reduce holdings on strength to my monthly risky level of $31.97. (For more, see: 6 Big Bank Stocks May Face More Pain Ahead.)