Bank of America continues to give up ground

Dec 1st, 2010 – 1 Comment

The six month chart illustrates the strong resistance along the 50 day moving average and neither the MACD nor RSI are signaling a change in momentum.

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Heard you talking on the radio to John Oakley on AM640 regarding the U.S. banking industry and it was very informative. What are your thoughts regarding BOA these days? Are they in a position to swallow up some of the smaller players now and go on a run?




Hi Mike,

Thanks for your question and for listening to the John Oakley Show on AM640. The issue at hand when I was talking about U.S. banks had to do with Fannie Mae and Freddie Mac pushing banks to buy back the mortgages that they bought from the originators that did not meet standard industry issuance standards.

Clearly there was massive fraud in the U.S. mortgage origination business. Forcing the issuer to chew down on the bad paper they passed up the line is one step that could resolve the huge mess in the U.S. housing market. The tug of war between the banks and those that created the securitized bonds has yet to be resolved. If the contest goes to the buyers of the fraudulent mortgages it will force some banks into the hands of stronger players.

I think it would be reasonable to assume that the U.S. banking system will see continued consolidation given that there are over 8,000 banks in the US with over $100 million in assets. To your question is Bank of America (BAC NYSE) one of the stronger players. The charts will give us some sense of the direction that BAC is headed.

The three year chart for BAC shows that it continues to give up ground. I last posted on the company on April 30, 2010 for Vincent.At the time I thought that the stock needed to catch a bounce off of $12.30 to have any chance of reversing the downtrend. Clearly that has not happened.

The stock has been selling off since April of 2010 when it reached its high for the year at $19.86 and I don’t see a lot of support in the current trading range.

The six month chart illustrates the strong resistance along the 50 day moving average and neither the MACD nor RSI are signaling a change in momentum.  There does however appear to be a double bottom forming at $11.00 which warrants continued surveillance. A double bottom is a reversal pattern that could indicate a change in direction to the upside. I  could be giving in to false hope given the trend in place but if you like BAC watch to see if we get a  reversal.

The three year chart for the bank index depicts a sector that is building a base but has not yet begun to move higher. Not great news but at least its not more bad news.

Finally if the likes of Fannie Mae and Freddie Mac are successful in getting the banks to chew down on their bad paper BAC may have to gorge themselves on gut busting volumes. In 2008 they acquired Countrywide Financial which wrote reams of tainted loans. Overall BAC is not what I would call a strong player.

Happy Capitalism

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