The Elliott Wave Principle could be very useful to investors, especially because of its ability to identify market tops and bottoms. Anyone with enough experience in the markets has been caught buying when he should have sold and selling when he should have bought. The ability to recognize the Elliott Wave Patterns definitely reduces the number of these frustrating occasions. How to spot a probable reversal on a chart? One way is to spot a five-wave impulse. According to the theory, every impulse is followed by a three-wave correction in the opposite direction. We are telling you this, because Bank of America stock looks like it is forming a top on a weekly chart.
As the chart shows, Bank of America offers a very clear impulsive rally from 4.90 to 18.20. Wave 5 looks like an ending diagonal. If we follow the logic of the Wave Principle, we should now expect a three-wave decline. Our negative expectations are further supported by the RSI indicator, which shows a bearish divergence between wave 3 and 5. If this analysis is correct, Bank of America could be ruled over by the bears during the next two or three years. It does not look like a stock to invest in right now.
