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Buy the Dip in Bank of America? Here's What the Chart Says

Bank of America is falling despite beating earnings and revenue expectations. Here's the level it has to hold now.

The earnings have continued to roll in, with Bank of America  (BAC) - Get Bank of America Corporation Report and Citigroup  (C) - Get Citigroup Inc. Report stepping up to the plate Thursday.

The reports followed the start of earnings season from Wednesday, when Wells Fargo  (WFC) - Get Wells Fargo & Company Report, JPMorgan  (JPM) - Get JP Morgan Chase & Co. Report and other banks reported their quarterly results.

While several banks are enjoying a nice upside boost, Bank of America was down a little more than 4% on Thursday. That’s despite the bank topping both revenue and earnings expectations.

Further, the company announced a $25 billion share repurchase plan.

It’s not uncommon to see a “sell-the-news” reaction from the bank stocks. However, the reports here have been pretty good and that’s got investors wondering if this is a dip-buying opportunity.

In regards to Bank of America, let’s look at the charts to see if that’s the case.

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Trading Bank of America

Daily chart of Bank of America stock.

Daily chart of Bank of America stock.

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The stock’s pullback looked fine Thursday morning, with shares dipping into the 21-day moving average.

However, shares have broken below this measure, as well as the 10-day moving average. If Bank of America stock can reclaim the 21-day by the close, it could very well set up as an attractive trade on the long side.

That’s because we’d have a clear post-earnings low to measure against, as well as a level of support holding (that being the 21-day moving average). 

What we really need to see though is a push above $40.50. So far, Bank of America stock has been rejected above $40. We need price to start being accepted above that mark in order to have a sustained breakout above it.

If that happens, keep the $46 to $47 area on the radar, as that’s where the 161.8% extension comes into play.

So what happens if the 21-day moving average isn’t reclaimed? Be on the lookout for this measure to turn into resistance. While the banks are trading well in general, we have to be on our toes for a change in character.

If Bank of America loses the 21-day and can’t reclaim it, lower prices could be on the way.

In that case, watch for a test of the 50-day and 10-week moving averages. A break of this area likely puts the 2020 pre-coronavirus high in play near $35.75.