Shares of Bank of America (BAC) have been showing signs of life lately. In early Tuesday trading, the stock was up by more than 2%. However, those gains have evaporated to some degree, with shares up just 65 basis points in midday trading to $28.25.
Still, BoA stock has been trying to build some bullish momentum over the past few days, along with some of its peers like Citigroup (C) , Goldman Sachs (GS) and JPMorgan (JPM) .
It's got investors wondering if this low-valuation bank is a worthwhile buy or if it's only bouncing with the overall market before eventually heading lower. Financials are a tough group. It's one of the first sectors to sell when recession fears rise and more lately, rates have been a big worry. As the yield curve tightens, it hurts banks' profitability.
While the earnings have been solid, the valuations are low and the dividends are for the most part attractive. Investors just haven't been drawn to this group. Let's look at the charts.
Let's start with the good. Bank of America stock has reclaimed its 200-day and 20-day moving averages, as well as its 38.2%, 50% and 61.8% one-year retracements. It's also north of the $27.50 to $28 range, which was notable support when BAC stock was stuck between this area and $29.50.
Ultimately $29.50 gave way, allowing Bank of America stock to breakout and run to $31. A yield curve inversion scare ultimately drove BofA stock back below range resistance ($29.50) and ultimately through range support ($27.50 to $28). In fact, this price action took place twice, in both March and May.
So now what?
These 10%+ declines have left deep gashes on BAC's stock charts. But they've also presented investors with buying opportunities when they've occurred.
Currently, we're seeing Bank of America struggling to push higher and the 50-day moving average appears to be acting as resistance. Even over this moving average, I would conservatively assume that $29.50 range resistance will act as a short-term ceiling to Bank of America. That makes it a tough buy right here.
With that in mind, $27.50 to $28 may again act as support. Should we get a soft pullback into this area that holds, I would consider it a buying opportunity. Don't forget, its nearest retracement -- the 38.2% -- is at $27.88, while its 20-day and 200-day moving averages are near $28.
If this area fails as support, a decline to the $26 to $26.50 area could be in the cards. Below that area and BAC stock may very well be in trouble. However, if a pullback materializes that far and holds, it will present investors with a solid buying opportunity.
The bottom line: Watch the 50-day on the upside and the $27.50 to $28 area on the downside.