Shares of Bank of America Corp (NYSE:BAC) are now higher by more than 25% year-to-date and looking strong. Helped by a spike in interest rates — as a result of a marginally more hawkish Federal Reserve and other G4 central banks — BAC stock has staged a technically sound breakout that could move higher.
Like I always say in this here column, without the proper perspective on the markets any given trader or investor over time will likely stand to give back a large chunk of his or her gains.
Over the past days, weeks and even months we have heard from a multitude of important central banks that they are slowly shifting to a more hawkish tone, if only moderately so.
On the multi-year weekly chart, we see that BAC stock (top part of the chart) dropped sharply along with the rest of financial companies and indeed the broader market during the 2008/2009 financial crisis.
After years of “basing,” BofA blasted higher following the U.S. election, and by so doing scored a technical breakout. Upside momentum however quickly again began to wane and the stock didn’t do much for bullish investors from early March until this past September.
After a prolonged period of rest BAC stock in September finally took the next leg higher, which now looks to have further upside.
BAC Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
At the bottom of the chart, in blue, I plotted a ratio chart of the Financial Select SPDR (NYSEARCA:XLF) versus the S&P 500’s SPDR S&P 500 ETF Trust (NYSEARCA:SPY).
On this chart we see that the relative strength of financial stocks as a group has improved versus the broader large-cap market and indeed now looks giddy to break higher. In other words, BAC stock could be in for a period of not only absolute but also relative strength in the broader picture.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
Moving on to the daily chart we see that as a result of the September breakout of the multi-quarter consolidation phase (black lines), the BAC stock’s intermediate-term moving averages have all begun to curl up again, which is constructive for the time being and should all else being equal offer a layer of technical support.
After the September breakout got overheated BAC stock in the second half of October started to rest again. While the stock remains in this near-term resting period, odds look favorable that ultimately a continuation-move higher sets in toward year-end.
Active investors and traders could look to buy BAC around current levels in the mid to high $27s for a next upside target at $29, followed by possibly $30 — although I do not expect this move to take place in a straight line.
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Source: Investor Place