Bank of America Is Toxic to Your Portfolio


BALTIMORE (Stockpickr) -- This market just doesn't want to stay down. Momentum is clearly on the side of buyers right now.

But this still isn't a "dartboard market." By that, I mean that you can't pick stocks by throwing a dart at a board full of tickers. That may work during truly frothy bull markets, but stock picking still matters in this market.

Case in point, two thirds of Dow Jones Industrial Average components are down year-to-date. And of those, half are down 5% or more since the calendar flipped over to January. They're not just underperforming; they're underperforming by a factor of ten. If you hold on to "toxic stocks" in this environment your performance is sure to suffer.

And Dow components are the least of your worries. A handful of other names (even big ones) look even more toxic right now. One of those is Bank of America (BAC).

Buying Bank of America s (BAC)ix months ago would have been a really good move. Shares of the big bank are up more than 14% over that time, stomping the S&P 500's performance over the same time period. But they're looking a whole lot less good now. In the last week, BofA has gone from being solidly in "uptrend" mode to teetering on the edge. Here's how to trade it.

Bank of America is currently forming a very well defined descending triangle pattern, a price setup that's formed by downtrending resistance above shares and horizontal support to the downside at $16. Basically, as shares bounce in between those two levels, they're getting squeezed closer and closer to a breakdown below $16. When that happens, we've got our sell (or short) signal.

It's no coincidence that a breakdown below $16 also means a break in the uptrend that's been in force in BAC since last summer. I'd recommend staying away from the long side of this big bank until it exits the triangle -- one way or another.

To see this week's trades in action, check out the Toxic Stocks portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

RELATED LINKS:

Follow Stockpickr on Twitter and become a fan on Facebook.

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes, Investor's Business Daily and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation. Follow Jonas on Twitter @JonasElmerraji.

More from Investing

This Is What's Hot Thursday - Stocks Slide, Intel's CEO Woes & Major Movers

This Is What's Hot Thursday - Stocks Slide, Intel's CEO Woes & Major Movers

Video: Jim Cramer on Netflix, Disney, Intel, Micron and Goldman Sachs

Video: Jim Cramer on Netflix, Disney, Intel, Micron and Goldman Sachs

Micron's Upbeat Guidance Is Getting a Thumbs-Up From Investors

Micron's Upbeat Guidance Is Getting a Thumbs-Up From Investors

Jim Cramer Weighs In on Intel CEO Resignation

Jim Cramer Weighs In on Intel CEO Resignation

Jim Cramer: I Think Deregulation Will Produce Very Good Earnings for Banks

Jim Cramer: I Think Deregulation Will Produce Very Good Earnings for Banks