Technical analysis of BAC

BAC, the representative CFD based on Bank of America Corp’s shares, has made strong gains in 2021 so far like many other financial shares. Ongoing sector rotation and the return to profitability by major banks have been very positive for this sector and BAC’s valuation remains very attractive for many investors. This technical analysis of BAC looks at the daily chart ahead of the company’s earnings report on Thursday, pre-market.

Bank of America Corp’s confirmation price:earnings ratio (‘PE’) for 2020 was 21, making it around fair value by this measure and certainly much less overvalued than many other large-cap American shares. PE for 2021 is expected to drop to around 15. BAC’s earnings per share (‘EPS’) in 2020 were generally decent but not spectacular. The last release on 19 January beat estimates by three cents with an EPS of 59c.

Back on the chart, there is no very clear high resistance other than the psychological area around $40, also the zone of the latest high. The other main psychological area of $30 seems to be an obvious candidate for low support.

Technical indicators on BAC D1

 

Moving averages continue to give a strong buy signal, with all three of the 50, 100 and 200 SMAs successively above slower lines and below the price. The 50 SMA is a clear medium-term support, with price having bounced from this area in late January.

While there is no sign of overbought from Bollinger Bands (50, 0, 2), the slow stochastic (15, 5, 5) at around 87 is clearly within the zone of buying saturation. This might support the impression from recent price action that the current zone is not an ideal place to buy in. Buying volume increased significantly in late February and early March, but compared to many other big shares volumes isn’t as positive overall as might typically be expected.

Price action and Fibonacci

 

Recent price action generally suggests weaker upward momentum, which is pretty normal in the context of an approaching earnings release. This impression stems mainly from the long wick on 18 March and this week’s reluctance to push above $40.

With BAC now having broken clearly above the 100% weekly Fibonacci retracement, i.e. full retracement of all losses in March 2020, this area is likely to flip to support over the next few weeks unless there’s a particularly negative surprise on Thursday. The 61.8% zone of the weekly Fibonacci fan might also function as a strong support over the next few periods given its proximity to the 50 SMA.

Technical analysis of BAC: summary

 

Bank of America Corp will release its earnings report for the first quarter of 2021 on Thursday 15 April, pre-market. The consensus EPS at the moment is 68c, with the nine estimates ranging from 55c to 78c. All nine of the estimates have been revised upward within the last four weeks.

Overall the technical picture for BAC is very positive and more gains seem to be likely unless there’s a notable change in sentiment. However, the traditional approach based on recent price action in this context would be to wait for a lower price before entering. This might appear during post-earnings volatility. As usual for earnings season, traders entering before Thursday’s release should be prepared for surprises.

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