US banking stocks rallied strongly in percentage terms in the second half of last week. While the bounce can be attributed to technical oversold readings and quarterly re-balancing by institutional investors, the intermediate-term trend for stocks like that of Bank of America (BAC:xnys) remain lower both from a technical, structural and fundamental perspective.
Interest rates continue to drop, Brexit fears remain, European banks remain a front and centre concern for investors and global economic and corporate top and bottom line growth is weakening. None of this speaks for any reason why banking stocks like Bank of America should be in position to string together anything more than a multi-day rally to lower highs.
Before looking at the chart, let's note that Bank of America is scheduled to report earnings on July 18, which is a date when trades may want to have reduced position size in BAC stock through the lens of sound risk management.
On the multi-year chart, we see that after the stock in January broke below multi-year horizontal technical support around the $15 area, the bounce in the spring simply brought the stock back to this former support area. In April and May, the stock got rejected at this technical resistance area and fell back lower. Interest rates meanwhile, as represented in blue in the bottom part of the chart are sill pushing lower, i.e. also not supporting any meaningful new bull run in the stock.
On the daily chart, note that the share price in mid-June also broke below its up-trending channel from the February lows as well as below its yellow 50-day moving average. The stock has since seen a couple of oversold rallies but each one was met by fresh selling.
Last week's rally in the stock brought it back to a small former area of technical support around the $13.20-40 area where active investors and traders could now try to lay out fresh short positions for a trade.
Management and risk description
As a side note, Bank of America last week announced a fresh round of stock buybacks, which could act as supportive for the stock.
Entry: sell short the stock or CFD at $13.50 or lower.
Stop: a daily close above $14.
Target: $12, followed by possibly $11.50.
Time horizon: 2- 3 weeks.
— Edited by Martin O'Rourke
Non-independent investment research disclaimer applies. Read more