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Bank Of America: Here's How The Bullish Channel Might Play Out

Chris B Murphy profile picture
Chris B Murphy


  • Bank of America is trading in a bullish channel that puts resistance at $27 (mid-term) and $28.50 for the top of the channel.
  • Bank of America has broken its 7.5% range set in January and has traveled nearly the distance in that range (the $25 to $26) zone.
  • Since BAC is moving on momentum, monitoring momentum indicators will be key going forward to ensure higher prices match higher momentum levels.

Thanks to President Trump, we've seen a bump in stocks once again. Bank stocks like those listed in the SPDR S&P Bank ETF (NYSEARCA:KBE) and the Financial Select Sector SPDR ETF (XLF) are rallying and of course a big winner is Bank of America Corporation (NYSE:BAC).

With these rapid and unprecedented gains, it's important to have a risk management strategy in case the market turns.

In full disclosure, this analysis is not a recommendation to buy or sell at a specific level. I'm not a financial advisor. My goal is to help you identify areas of risk in your portfolio, identify areas of resistance and support, and areas where volatility is likely to rise.

If you receive me articles via email as a follower on Seeking Alpha, you'll know on January 24th, we discussed the resistance area of $25 to $26 upon a break of the 7.5% range that BAC was stuck in at that time. I'm not going to rehash the article, but I'd like to show how momentum stayed strong throughout this move higher.

Here' the chart below and three key points from the January article:

  • If BAC stock breaks out of the current 7.5% range, this range-break can sometimes, (not always) propel the stock to travel the length of the range.
  • As a result, a range-break could translate to a 7.5% move higher to the $25 area.
  • A higher move in RSI could correspond to BAC price break to the $25 price target.

The Relative Strength Index (RSI) is a momentum indicator and an overbought-oversold indicator.

In the chart above (from January), the bounce off the 50 level is a bullish signal.

Typically, in a bull-run, we want to see RSI above 50 for a strong move higher. If it breaks below 50, we typically get a pullback. However, if RSI breaks

This article was written by

Chris B Murphy profile picture
Hello. I'm a financial writer/blogger & market risk analyst with 15 years in the financial services industry including over 10 years on trading desks of two major banks. --------------------------------------------------------------------------------------------------------------------- My Top-Down meets Bottom-Up Approach to financial analysis includes: ----------------------------------------------------------------------------------------- How Macro Trends & Economic Indicators, Bond yields, Capital flows, & The Fed - Drive Sectors & ultimately Individual Stocks. - Financial analysis of Bank stocks, Commodities, Industrials, & Tech. - Former currency risk advisor to Corporates, with Options and risk policy experience.- Published Work includes: Financial analysis (Investopedia); - Retirement Income (RetirementIncomeAnalyst.com) & Wealth Management Firms. - Hold an Economics degree with a concentration in Finance (University of Rhode Island).

Analyst’s 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (18)

Agree the read is good & I see BAC getting stuck unless it turns up the dividend and soon. Now Yellen is moving the rates, other banks are getting ready to sweeten the deals fast. BAC could get left behind to JPM, WF, & MS.
Chris B Murphy profile picture
Great point of the dividend. They certainly have the cash to do the dividend. And it would help investor confidence in the company.
caperdory profile picture
Nice technical review....thanks...will watch for your updates on BAC
$24 to $25
stevesteve profile picture
so what is your buy range now
Any chance of buying BAC at $24?
Chris B Murphy profile picture
In such a bull market, it's tough to say how far BAC will continue since it's up over 100%. So, i look to range breaks as a guide. So we're in a current range this week of roughly 2% and if it breaks lower, (below 25.08) AND we have a daily close below it; it might go the length of the range which would bring BAC to roughly $24.50ish. From there i'd have to see where momentum and yields are trading to decide whether or not to do anything. The Fed meeting is on 15th so we may trade sideways till then. And from a risk standpoint (for me, at least) it's a lil too risky to trade going into the meeting. Hope that helps.
Chris, thanks. I did not wait for the pull back. I added some to my existing BAC at $25.34 because the Fed meeting is close. In the long run, this price will not make any difference. In a few years, I really think BAC can go to $50 and beyond if Brian continues his good work; GOP can execute their agenda; economy can expand 2-4%; and Fed can continue 2-3 times interest rate rises. I know there is too many "IF", but you cannot make an omelette without breaking an egg. You get what I mean.
hahaha48 profile picture
the most important thing now is the earning report on 3 20. not the
mgpagan profile picture
And a possible rate rise on the 15th of this month.
mgpagan profile picture
BTW earnings report is on 04/13/2017

Bruce Kamich from the street concurs and he's using mostly the same charts in this article. No discredit to Mr. Murphy, he wrote a very fine article but Kamich claims BAC could double by the end of the year. I think he stretches the imagination a bit but it would be nice.
Chris B Murphy profile picture
Wow, double! that'd be sweet. I'll have to read that article. Although I think certainly $35 to $45, in the long run is reasonable. But i think we need to see economic growth do better than 1.9% of last year. And my concern is that Q1 GDP is typically ugly b/c of the holiday layoffs and half the country stays indoors due to the winter (less housing and retail purchases). As a result, retail stocks look ugly right now. thx for reading.
BikerX profile picture
@Chris B Murphy - Interesting read. This (IMO) is the most important takeaway from your article, "...RSI is not a predictor of price action; it merely represents the momentum in the market. Fundamentals drive the market, not the charts."
Great article
Chris B Murphy profile picture
Thanks Jay
Thank you!!!
Chris B Murphy profile picture
You're welcome. Thanks for reading.
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