Bank of America Stock Trading Lower After Earnings Beat

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Bank of America Stock Trading Lower After Earnings Beat

Despite outperforming top- and bottom-line second-quarter 2020 projections, Bank of America Corporation (BAC) is trading down roughly 3% in Thursday’s pre-market session. Revenue declined 3.5% year on year to $22.3 billion, while credit loss provisions increased to $5.1 billion, including a $4.0 billion reserve build owing to the COVID-19 pandemic concern. Net interest revenue declined 11% as interest rates plummeted, making it more difficult for commercial banks to make profits.

This week’s response to second-quarter banking sector results has been underwhelming, with Dow component JPMorgan Chase & Co. (JPM) the only one of the four major commercial banks to report even moderate gains. This attitude reflects rising concerns about a lengthy and prolonged recession that may stifle corporate activity for months or years. Because of this link, the group is extremely cyclical, increasing the likelihood that several components would ultimately revisit their first quarter lows.

Bank of America Long-Term Chart (1991 – 2020)

A severe decrease ended in 1991 at a split-adjusted $4.22, paving the path for an increase that completed a cup and handle breakout in 1995. The stock had remarkable increases up to its 1998 high of $44.22 before reversing when the Asian Contagion peaked in 1998. That was the biggest high in six years, before a complicated downturn that found support in the teens in December 2000.

In 2005, the stock broke out above the 1998 high, posting moderate increases until the fourth quarter of 2006, when it peaked in the mid-$50s. The ensuing downturn intensified into a near-death spiral during the 2008 economic meltdown, eventually coming to rest in March 2009 at a multi-decade low in the low single digits. One year later, the ensuing rebound stagnated in the high teens, setting a barrier that would take another six years to overcome.

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A breakthrough after the 2016 presidential election gained fire, accelerating towards the March 2018 high of $33.05. In October 2019, price action formed a bullish inverse head and shoulders pattern and broke out once again, peaking out fewer than three points above the 2018 high in January 2020. Seven weeks later, the stock fell along with global markets, failing to break out until finding support at a three-year low in the high teens.

Bank of America Short-Term Chart (2018 – 2020)

In December 2019, the on-balance volume (OBV) accumulation-distribution indicator completed a round trip into the March 2017 high (red line) and broke out. It dropped to a 15-month low in April after failing to break out in February. Since then, buying activity has made very little headway, recouping around half of the previous fall. This is comparable to price activity in the first half of 2020, providing Bank of America investors with neither a headwind nor a tailwind.

The rise into January 2020 was halted at the.618 Fibonacci retracement of the 2008-2009 bear market, while the rebound into June 2020 was halted at the.618 Fibonacci retracement of the first-quarter downturn. This symmetry indicates a bearish long-term perspective, which might ultimately lead to a breach through upper-teens support. In contrast, a purchasing impulse into the low $30s is now required to rectify the failing technicals.

The Bottom Line

Bank of America shares has fallen below the 50-day exponential moving average (EMA) before of Thursday’s opening bell following a disappointing second-quarter 2020 earnings report.

Disclosure: At the time of publishing, the author had no investments in the aforementioned securities.

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