One of the repercussions in the financial sector for such a snail-like economy is the tightening of the Investment Banking sectors. Bank fees have dwindled and banks can no longer support a fat work force and are having to cut everyone back. Europe is in a recession and China has been slowing down since last year. Emerging economics like India and Brazil have also seen sharply lower growth while USA can't grow more than 2% despite massive fiscal and monetary stimulus. This is an area that Bank of America (BAC) is being forced to downsize. It is not just them though, Deutsche Bank out of Germany is just another example of global investment banking having to downsize is this anemic economy. Bank of America would not confirm published reports that the bank planned to eliminate 16,000 jobs across the company by the end of the year.
Gearing Up for New M&A Profitability
Goldman and Morgan Stanley, two banks that have always seen M&A advice as core to their business models, is possibly looking at a new kid on the block as Bank of America intends to shore up its M&A division with the dreams of becoming one of the top three players. Even in its home market, the bank only ranks sixth in what is the most publicly exposed part of investment banking. It is an interesting paradox that the bank is still sorting through struggles with purchases of "Country Wide" and announced back in 2011 that it would start laying off about 30,000 employees. But the "investment banking" division is geared for growth and employs about 6,000 around the world. It will be difficult for the bank to break in quickly since it takes a good 3 to 5 years to build the proper relationships. But the bank is gearing up to make this part of its portfolio profitable.
This summer the stock formed a double bottom and it is interesting to observe its journey. At the first peak of the bottom near the end of May, the stock was also over sold according to the RSI. Since its recent peak here in September, the RSI showed it as over bought and it has since retreated. If we observe the Bollinger bands, it appears the stock may be using the middle band as a support level. If this is true, I would expect the stock to move back up soon. Both the MACD and the RSI are supporting the movement of the stock. So as I observe things I see one of two possibilities. Either it will continue up in this bullish pattern (which indicators suggest) or it is just forming a bearish to neutral pattern that has not yet been revealed.
The Options Trade
The stock is presently trading at 9.00 and I am going to follow the trend of this stock. The last peak was at 9.75 and I am not sure if the stock will continue up through 10 at this point or not. For this reason I am going with a straight bearish options buy into November. The stock will put back below '9' before it pushes up through '10'.
- Buy a December 2012 put option with a strike of '9' (priced at $0.62)
Reasoning behind the Trade
- Although the stock is trading bullish, markets are jittery.
- I don't believe the momentum will carry the stock past '10' before it backtracks and touches below '9' first.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.