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Here's How to Trade Bank of America on Earnings

Bank of America could have room to run on the upside but it needs to clear resistance. If it can't, it's hard to get too bullish.

The banks are in focus as the third-quarter earnings season gets underway. Up next will be Bank of America  (BAC) - Get Bank of America Corp Report, which reports earnings on Wednesday before the stock market opens.

Shares have fallen about 2% on Tuesday, but that’s in sympathy with the declines in its peers.

Both JPMorgan Chase  (JPM) - Get JPMorgan Chase & Co. (JPM) Report and Citigroup  (C) - Get Citigroup Inc. Report were down slightly on the day despite both companies delivering better-than-expected earnings and revenue.

It has investors wondering if Bank of America and Wells Fargo  (WFC) - Get Wells Fargo & Company Report have what it takes to rally after reporting on Wednesday. Goldman Sachs  (GS) - Get Goldman Sachs Group, Inc. (GS) Report has been turning in some pretty strong results lately, so maybe it has what it takes, but we won’t know until the numbers roll in.

Let’s look at the charts and get an idea of how Bank of America sets up.

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Trading Bank of America

Daily chart of Bank of America stock.

Daily chart of Bank of America stock.

Above is a daily chart, while below highlights some of the longer term levels to keep an eye on with the weekly chart.

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As you can see above, the 200-day moving average continues to act as resistance for Bank of America stock. That level has been far more significant than the 20-day and 50-day moving averages.

While the latter two moving averages may act as support, it’s the 200-day moving average that bulls must really conquer to trade higher. A move above this mark and the 50% retracement at $26.33 puts the September and August highs in play, at $26.76 and $27.56, respectively.

Above that and the post-coronavirus high from June will be on the table, up at $28.81, along with the 61.8% retracement at $28.36.

On the downside, a break of $24.50 puts range support in play near $23.

Weekly chart of Bank of America stock.

Weekly chart of Bank of America stock.

On the weekly view, investors can see how Bank of America stock has struggled with the 200-week moving average as well. Shares are below this mark now, but even when the stock has gotten above it, it has been met with resistance at the 50-week moving average.

The $25.50 to $26 area — which was support in 2018 and 2019 — hasn’t done the stock any favors either.

In this case, Bank of America would look much healthier on a weekly close above the 50-week moving average. Below the 10-week moving average, which is currently near $25, and bulls will be left in a tougher position.

Here’s the bottom line: Banks could have room to run this quarter if they can clear some major hurdles. Should they remain below resistance, it’s hard to be too bullish on them in the short term.