Even since reaching a 52-week high of 19.86 back in April of 2010, Bank of America (BAC) shares have severely underperformed the broader market, falling by more than 30% in 8 months. The 50-day moving average has been a strong resistance for the stock (and provided great opportunity to short). However, today the stock broke above it 50-day moving average of 12.04. This will now be the new support. The stock also shows a double bottom at the 11-level. If BAC shares can breach the 13-level, the downtrend will also be reversing course.
Investors bullish on BAC can go long with stop-loss underneath the 50-day moving average. The February 2011 12.00 strike calls look attractive.
DevTrade (Full Disclosure: Author long BAC Calls at the time of writing)
Well, I certainly hope it doesn’t reverse trend =D
Several notes to consider in addition to DevTrade’s awesome analysis: BAC has an upcoming quarterly result ~mid-Jan. If you intend to follow through with this suggestion, please consider this strongly. Furthermore, BAC has dividends 😉 I also second the call idea. I myself bought a Put, but either/or really. Just protect yourself!
@DevTrade — your clairvoyance is growing, sir.
Disclaimer: The Vish owns the BAC.
Thanks for your insight, Vish.
I just wanted to point out that BAC pays negligible dividend (1 cent) at this point of time. However, I do expect BAC to raise its dividends sometime in 2011.
Also, when you mentioned that you own BAC puts, I believe you meant you are long BAC shares and you own the puts just as insurance. Am I correct?
PS: Thanks for your kind words!
Yes, you are correct. Long BAC with Put acting as insurance. Negligible dividends?!?! What?!?! Oh, fine, yes Ok. Maybe the 1 cents added up in some third world country will make us rich (relatively speaking).
The RSI indicator is also increasing, so if BAC continues to have a good run and continues to push past the new formed support, there could be a pull back and if it really does bounce back off the 12, then yay…more confirmation.
Yes… Definitely! More than often, after a breakout, the stock pulls back to the breakout level. If the breakout was not a fake one to begin with, the stock is then expected to bounce off of the NEW support level. That would be a good time to buy. Thus I would recommend taking a small position when the breakout happens and then pile in more after getting some re-confirmation.