Friday, January 14, 2011

BAC - Technical Analysis

Please excuse the following chart, it's rather busy but I wanted to point out a few things of interest with BAC.  First and foremost I believe the 40% bounce that has been realized since 11/30 was a combination of a short squeeze, dash for trash as bears capitulate and look for a long trade that is not overbought and Wall Street's version of Three Card Monte.

The CNBC spin machine (Bove in particular), WFC upgrading the sector (talk about unbiased) and today's JPM 30% earnings due purely to reversal of loan loss reserves have caused many to drink the Koolaid.  Notice JPM sell off in heavy volume today?  Telling for sure.  Rumor has it Jon Paulson was selling his BAC warrants last quarter as well.  No chance this move up is an opportunity for those on the wrong side of the trade to get out?  Certainly no reason why BAC and JPM have been leading the selling on strength the past few weeks.  My sarcasm has got the best of my, apologies.

Now back to BAC.  Below are a few items of interest with:

1 - I'm not a super experienced head and shoulders trader but there appears to be one forming on the daily chart.   If this plays out a $5.50 price target would be possible.  Should the macro picture worsen (personally  I think it will) BAC could experience a very nasty and fast correction.

2 - BAC put a similar pop in February through April 15, 2010 as we have seen since 11/30.  In both instances the move up was exactly 40%.  Today's price action was strong and had volume which was impressive.   A gap going back to 7/15/2010 was filled today and considering the severe overbought conditions may well be the top.  Today's high was also a 50% retracement of the April high to the November low of 2010.

3 - The orange horizontal lines on the chart are the gaps to be filled to the downside.  There are a lot of them.  A big chunk of this move up has been purely gap fills.

4 - Notice the slow stochastic (severely overbought), RSI (severely overbought) and the bearish divergence on the MACD, all while price has moved up 40% in 6 weeks (all in the face of very bad industry news including a confirmed double dip in housing).