This "too big to fail" bank showed strength in three of its four lines of business; global banking, investment banking and consumer banking. Its Wall Street trading activities performed slightly below expectations.
My call is to book profits on strength to its semiannual and quarterly risky levels at $31.16 and $31.71, respectively. The short-term downside risk is to its monthly pivot at $29.17.
The bank closed Tuesday at $29.14, holding its monthly pivot. The stock is up 18.3% year to date and in bull-market territory 28.6% above its Dec. 24 low of $22.66. The 2019 high of $31.17 was set on April 29.
Longer term, the Charlotte banking company had a huge bull market followed by a bear-market correction. The stock traded as low as $10.99 on Feb. 12, 2016, then tripled to its multiyear high of $33.05 on March 12, 2018. From this high to the Dec. 24 low, the stock declined by a bear market 31%.
Fundamentally, the stock is reasonably priced with a price-to-earnings multiple of 10.32 and a dividend yield of 2.48%, according to Macrotrends.
The Daily Chart for Bank of America
Courtesy of Refinitiv XENITH
The daily chart for Bank of America shows the 31% bear-market decline from the March 12, 2018, high of $33.05 to the December 2018 low of $22.66. The 2018 close of $24.64 was an important input into my proprietary analytics, and the annual value level at $24.07 provided a buying opportunity on Jan. 2.
The bank beat earnings estimates on Jan. 16, resulting in the price gap higher shown on the chart. The stock set its 2019 high of $31.17 on April 29. The midyear close of $29 was another important input to my proprietary analytics and the semiannual risky level for the second half of 2019 remains at $31.16.
The close of $29.17 on Sep. 30 was the latest input to my analytics and the pivot for October is $29.17 with a fourth-quarter risky level at $37.71.
The Weekly Chart for Bank of America
Courtesy of Refinitiv XENITH
The weekly chart for Bank of America shows the huge bull market from the Feb. 12, 2016, low of $10.99 to the March 12, 2018, high of $33.05. The stock is thus consolidating this bull market and the weekly chart is positive with the stock above its five-week modified moving average of $29.08.
The stock is well above its 200-week simple moving average or "reversion to the mean" at $24.35. The 12x3x3 weekly slow stochastic reading is projected to rise to 57.47 this week, up from 55.33 on Oct. 11.
Trading Strategy: Reduce holdings on strength to its semiannual and quarterly risky levels at $31.16 and $31.71, respectively, and buy weakness to its monthly pivot at $29.17.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the past nine monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31, 2018. The original annual level remains in play.
The close at the end of June 2019 established new monthly, quarterly and semiannual levels. The semiannual level for the second half of 2019 remains in play.
The quarterly level changes after the end of each quarter, so the close on Sept. 30 established the level for the fourth quarter. The close on Sept. 30 also established the monthly level for October as monthly levels change at the end of each month.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.
To capture share-price volatility, investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.