Bank of America Corp. stock closed at 14.42 yesterday. In 2015, the stock suffered a sell-off from as high as 18.42 dollars a share down to 10.94 by February, 2016. Could this slump be expected and is the current recovery going to continue?
On January 8th, 2015, nearly twenty months ago, we published “Bank of America Set to Extend Decline” to prepare investors for the upcoming weakness. “It does not look like a stock to invest in right now” was the last sentence in that article. The chart and analysis this conclusion was based on is given below.
Except for this chart, we did not need anything else to form our bearish opinion on Bank of America stock. First of all, the Elliott Wave Principle suggested it was trading near the end of the final phase of a five-wave impulse. According to the theory, every impulse is followed by a three-wave correction in the opposite direction. In addition, the relative strength index was showing the typical bearish divergence between the last two motive waves within the sequence – 3 and 5. As the update chart below proves, technical analysis serves us not only in the short term.
A little relabeling was needed, because wave 4 extended into a running flat, but it is true that Bank of America was definitely not a “buy” twenty months ago, in January, 2015. A year later, it had already lost about 40% of its value. Most people claim that technical analysis is useful only for short-term forecasts, while long-term developments depend entirely on fundamental factors. The Wave principle proved that when it comes to Bank of America, that is not the case.
Now, the 50% Fibonacci level seems to have stopped the bears in their tracks for now. Besides, the 5-3 wave cycle is pointing higher. If this is the correct count, Bank of America stock could be expected to climb above 18.42 from now on, since wave (C) is supposed to exceed the top of wave (A). 10.94 seems to be out of danger, at least for now.
