Will Bank of America Continue Its Powerful Move Higher?

With shares of Bank of America (NYSE:BAC) trading around $13, is BAC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Bank of America is a financial institution, serving individual consumers, small and middle market businesses, corporations, and governments with a range of banking, investing, asset management, and other financial and risk management products and services. Through its banking and various nonbanking subsidiaries throughout the United States and in international markets, the company provides a range of banking and nonbanking financial services and products through five business segments: Consumer and Business Banking, Consumer Real Estate Services, Global Banking, Global Markets and Global Wealth & Investment Management, and Other. Bank of America is a giant in the financial industry that is the backbone of most economies worldwide. The industry suffered in recent years but is now recovering and looks poised to provide the products and services consumers and companies need in order to see progress.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

T = Technicals on the Stock Chart are Strong

Bank of America stock had a disastrous fall during the 2008 Financial Crisis but has bounced back since then. The stock is now trading near levels not seen since 2009 and 2010. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Bank of America is trading above its rising key averages which signal neutral to bullish price action in the near-term.

BAC

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Bank of America options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Bank of America Options

31.74%

90%

89%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Bank of America’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Bank of America look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

233.33%

-77.17%

-100%

121.11%

Revenue Growth (Y-O-Y)

4.13%

-25.02%

-28.20%

65.97%

Earnings Reaction

-4.72%

-4.24%

-0.21%

-4.92%

Bank of America has seen mixed earnings and revenue figures over the last four quarters. From these numbers, the markets have been disappointed with Bank of America’s recent earnings announcements.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

P = Poor Relative Performance Versus Peers and Sector

How has Bank of America stock done relative to its peers, Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), and sector?

Bank of America

Citigroup

JPMorgan Chase

Wells Fargo

Sector

Year-to-Date Return

19.60%

35.21%

26.70%

21.39%

23.40%

Bank of America has been a relatively poor performer, year-to-date.

Conclusion

Bank of America provides essential financial products and services to consumers and companies operating all around the world. The stock has bounced back from extreme selling pressure and is looking to continue its bullish run. Over the last four quarters, earnings and revenue figures have been mixed which has really disappointed investors. Relative to its peers and sector, Bank of America has been a poor performer year-to-date. WAIT AND SEE what Bank of America does this coming quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More Articles About:   , , ,  

More from The Cheat Sheet