Why Bank of America Stock Is Headed for a Selloff

NEW YORK (TheStreet) -- Bank of America (BAC) shares are poised for a downturn, comprehensive technical analysis shows.

The price of this big-bank stock is back at the level that has been troublesome for the bulls, shown in the upper yellow boxes (see chart below), where rally extremes of the past six years have rejected further upside.

If one has no capital invested in Bank of America, would this be the time to initiate long exposure? Not objectively speaking, at least according to the Decision Support Engine.

Meahwhile, stochastics are making lower and lower peaks, diverging bearishly against price, as shown in the lower yellow boxes. The dark red lines show the divergence. This hints of selling by the "smart money" at the expense of the late-joining crowd.

Whether or not $18 is the high of this move, the next big move appears (based on six years of objective observation) to be downward in the coming nine to 15 months. This sell signal would prompt an investor to sell short the stock if the investor had no existing position. If the investor was long, he or she would be selling to flatten the exposure. An investor with an existing short position would be adding to it or holding steady.

The green boxes show when investors ideally would want to be looking to establish a bullish position or increase the size of an existing one. These boxes show when the DSE would be warning to use buy actions (which include buying to exit short exposure).

On a shorter-term basis, the weekly and daily bar charts show stochastics that are just now rolling over and are likely to drag the price behavior down with them, which will eventually roll the monthly stochastic over, too. By the time this happens, BAC should be falling down through the $14 level, and heading quickly into the $11s.

Shares of Bank of America were trading Monday morning at $16.98, down 43 cents, or 2.5%.

 

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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