Bank of America - How to Trade It After Earnings Selloff

Bank of America is taking it on the chin Wednesday after disappointing quarterly results. Here's how to trade the stock now.
Author:
Publish date:

Bank of America  (BAC) - Get Report is having a rough week. Shares fell more than 6% on Wednesday after the company reported disappointing quarterly results.

The stock has declined almost 11% so far this week with shares falling in each of the past three days. Disappointing quarterly results from JPMorgan Chase  (JPM) - Get Report and Wells Fargo  (WFC) - Get Report didn’t help matters on Tuesday, but overall the banking sector continues to struggle.

Bank of America reported first-quarter revenue of $22.77 billion, which contracted 1% year over year but beat analysts’ estimates by $190 million. However, earnings of just 40 cents share missed expectations by 14 cents.

Like some of its peers, the bank has been building up its reserves in order to have additional liquidity in a time of economic uncertainty.

After a painful decline in March, bank stocks embarked on a potent rebound over the last several weeks. After such a move, and as Bank of America stock approaches some previously key support levels, it’s no surprise to see the stock backpedaling a bit now.

JPMorgan Chase and Citigroup are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells JPM or C? Learn more now.

Trading Bank of America Stock

The weekly chart of Bank of America stock.

The weekly chart of Bank of America stock.

Much like the price action highlighted in our recent Citigroup  (C) - Get Report earnings preview, BofA stock knifed right through a critical level. After the stock finally broke out over the $31 mark, investors expected this breakout level to act as support. At the very least, it could have provided some temporary reprieve.

Instead, Bank of America stock blew right through the mark, closing the first week of the coronavirus selloff near $28. By the end of the next week, shares closed below $26. Ultimately, the stock bottomed near $18, before rebounding back up to $25 at the end of last week.

There, shares were promptly rejected by the 200-week moving average and former range support. It should come as little surprise to investors that this level acted as a resistance. Now pulling back, what should traders have their eye on?

I want to see if BofA can find support in the $21 to $22 area. The former mark is low from the 2018 selloff, while the latter was support for a bulk of 2017 before shares eventually took off on a strong rally. Below those marks puts sub-$20 in play, as well as the 2020 low near $18.

With a positive post-earnings reaction no longer a catalyst for Bank of America stock, it’s unlikely that the stock reclaims the $25.50 area anytime soon. However, it’s not yet clear if this is a buy-on-dips candidate given the struggles we’ve seen from bank stocks lately.

Let’s see if support comes into play at $21 to $22, then go from there. 

StreetLightning Videos with Jim Cramer: