Upfront conclusion: This may be a timely opportunity to buy Bank of America (NYSE:BAC), with big-money funds apparently actively in pursuit of expanding their holdings.
The past 6 months daily forecast trend
(used with permission)
The vertical lines here span the range of price being hedged against by the market-making [MM] community. They protect their firm capital temporarily put at-risk to "fill" the "other side" of volume block trades in the subject security on each date indicated. Derivative securities used to provide the hedging protection must contemplate the likely extent of the subject's coming prices.
The heavy dot is the subject's end of day market quote that day. It defines the upside and downside price change prospects held likely. The balance of those proportions is measured by the Range Index [RI]. It tells what percentage of the entire forecast span is below the current market quote. Here it is 38, indicating almost 2 times as much upside as downside.
The row of data between the two pictures uses the RI's history to evaluate how effective today's RI has been in the 3 months following each similar RI of the past 5 years. Definition of the data items is as follows:
Sample Size: Count of prior days with today's RI out of past 5 years days of forecasts
Sell Target Potential: Percent the High Range Forecast is above the Current Price
Drawdown Exposure: Average of each Sample's worst-case next 3-month experiences
Range Index: Percentage of High Forecast minus Low Forecast below Current Price
Win Odds: Percentage of Sample with profit at 3 month or on first Sell Target closeout
% Payoff: Average size of all Sample closeout prices from their Current Price cost*
Days Held: Market-day count from forecast day to closeout day
Annual Return: CAGR of% Payoff in number of Days Held of market-days year
Cred.Ratio: Forecast credibility, measured by% Sell Target divided by% Payoff
* position costs are at closing prices of next market day after forecast.
The lower "thumbnail" picture in Figure 1 shows the distribution of RIs over the past 5 years of daily forecasts. RIs other than today's are likely to produce different data.
The population of forecasts this issue is drawn from
The current MM population forecast averages and the average of its best 20 are in Figure 2.
Comparing BAC to the averages, its upside price change prospect (5) is not quite as exciting as the forecast population, while its price drawdown experience (6) is some less. That makes its reward~risk ratio (11.4% / 8.3%) of 1.4 much more comforting. The population carries a 0.3 ratio, meaning that experienced drawdowns are roughly three times the forecasts, on an issue by issue basis.
Compared to the market-index ETF, the SPDR S&P 500 Trust ETF (SPY), BAC at this point offers a better upside prospect of ~11%, while SPY is being forecast at ~7%. And BAC 's follow-through of 4.9% achieved payoffs (9) from its 416 prior forecasts with similar RIs has been more effective than SPY's 1.8%, and far better than the population's 2.7%.
Win Odds (8) is a measure of interest. It tells what percentage of positions in the sample recovered from their worst drawdowns to be closed out under the TERMD portfolio management discipline at a profit. BAC at 70 is some under SPY's "strong suit" of 80 (and less than the top 20 stocks' average of 84).
Still, BAC has gotten its positions reaching their top-of-forecast-range sell targets earlier than SPY, so its average "holding period" (10) of just over ten weeks is shorter than SPY's average of over 11 weeks - 58 market days. That helps boost its CAGR (11) of price change of 26% far past being competitive with SPY, at 8%, and above the population's +16%.
In all, these are favorable comparisons for BAC.
Some additional weekly interval forecasts
For historical perspective, Figure 3 provides once-a week extracts of the current subject's daily prior forecasts to form a 2-year weekly history of forecasts.
(used with permission)
Some points in time offer little help on many stocks and ETFs for investors concerned with building capital wealth by equity investment.
That is not the case here, now, for Bank America Corporation. Its upside prospect is large in comparison to its drawdown history, and its Range Index of 38 is on the advantageous low side of its narrow RI distribution. Its Win Odds of 70 is competitive in comparison to many alternatives, particularly among the 2,500+ forecast population in Figure 2.
This may be a timely opportunity to buy BAC, with big-money funds apparently actively in pursuit of expanding their holdings.
Additional disclosure: Peter Way and generations of the Way Family are long-term providers of perspective information, earlier helping professional investors and now individual investors, discriminate between wealth-building opportunities in individual stocks and ETFs. We do not manage money for others outside of the family but do provide pro bono consulting for a limited number of not-for-profit organizations.
We firmly believe investors need to maintain skin in their game by actively initiating commitment choices of capital and time investments in their personal portfolios. So our information presents for D-I-Y investor guidance what the arguably best-informed professional investors are thinking. Their insights, revealed through their own self-protective hedging actions, tell what they believe is most likely to happen to the prices of specific issues in coming weeks and months. Evidences of how such prior forecasts have worked out are routinely provided. Our website, blockdesk.com has further information.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.