Those who read my last column know that I thought that, when it was selling in the $5 per share range, Bank of America (BAC) was a screaming short term buy. When it went back up almost to $7, on Monday afternoon, but then dropped down, again, it showed no strength in comparison with the overall market. Instead, it seems to now be moving with the market. You can find a lot of stocks that will do the same.
It still seems to me that the analysts from Goldman Sachs (GS), Citigroup (C), et. al. are unrealistically pessimistic, just as they had previously been unrealistically optimistic. However, the high $6 range seemed as good a time as any, to close what was basically a short term bet. Subsequently, the stock’s share price has dropped down to the low $6 range, proving a lack of real interest among investors. It is likely that the bounce was merely due to short sellers covering positions.
Big banks are not likely to do well for many years. Gracious politicians, who use our tax dollars like personal piggybanks, have tried to make “nicey nicey” with the banks. However, the outlook for all of them, BAC included, seems bleak. BAC has very large derivatives positions and that is a very bad thing. Unless an investor has a huge amount of patience, and is willing to invest many years, it is better to sell BAC stock now, while a profit can still be made.
The stock may be a good long term bet, but, so many other companies and commodities have a much better medium term outlook. Don’t get me wrong. I don’t suggest that BAC should be shorted. I certainly don’t think the company will go out of business, or will be nationalized, or anything like that. On the contrary, I think the stock will probably do ok in the longer term. But, given stalled in the $6-7 range, in spite of obvious covering of short positions, the wise investor will now close his long position. That is what I have done.