Caution: This Stock Needs to Take a Breath

Bank stocks and the rest of the S&P 500’s financial sector have shown notable relative strength since early July, when the index broke to fresh all-time highs. As a result, stocks like Bank of America Corp (NYSE:BAC) have marked their intermediate-term charts with a significantly bullish development.

But the BAC stock rally might be a little stretched in the near-term.

Multi-time-frame analysis (studying price action in near-, intermediate- and longer-term time frames) is among the most important analysis any trader can do.

The perspective you can gain from looking at charts across different time frames is essential to proper risk management.

It helps you not fight predominant trends in an asset or asset class.

With that in mind, let’s look at Bank of America’s charts.

BAC Stock Charts
This first chart stretches back to the financial crisis and we can see that while BAC stock largely remains below key horizontal resistance around the $18 area, the series of higher lows as marked by the green bubbles is undeniable.

To be clear, the stock remains far from breaking above this $18 area and the still ultra-low interest environment may offer plenty further headwinds to such an accomplishment. However, the financial sector and BAC in specific rallied nearly 35% since late June and this absolute strength coupled with the aforementioned relative strength must be respected for ultimately the only thing that pays investors and traders is price.

On the next chart, we can use monthly bars to get a different perspective of Bank of America’s bullish developments from the past few months. Note that the January candle closed well off its intramonth lows, and that the June weakness in July was quickly followed by buying. Finally, the August monthly candle, which just closed on Aug. 31, marked strong continuation buying and a breakout past the $15 area. This area had previously acted as multimonth resistance.

So, on the monthly chart, we see that a potentially crucial bullish reversal has taken hold. We just have to keep it in perspective.

On the daily chart, we see that the 35% rally in BAC stock since June has put the stock in a very steep near-term slope. From a momentum perspective, Bank of America is increasingly overbought.

Bottom Line on Bank of America
The near-term schedule includes Friday’s August jobs report, the September FOMC meeting and the generally more volatile September-October period for markets. Thus, we might not want to chase BAC stock right here, right now.

However, because the bigger picture is increasingly showing positive signs, Bank of America might be a buy again when it’s closer to the $15 area.

In other words, BAC stock just needs to breathe.

Apply multi-timeframe analysis and respect the price action. After all, when the analysis is over, price is the only thing that pays us.

— Serge Berger

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Source: Investor Place