close icon

Bank of America Riding the Earnings Wave… For Now.

The last time we wrote about Bank of America was on October 18th, 2018. The stock was trading below $29 a share, down from the $33.05 top reached in March.

The bank had just reported a record first quarter, but the stock price was falling nevertheless. So in order to make sense of it, we turned to Elliott Wave analysis of BAC’s 3-hour chart, shown below.

Bank of America stock Elliott Wave prediction

The chart revealed that the decline from $33.05 was a simple A-B-C zigzag correction with an expanding triangle in wave B and wave C still under construction. This meant more weakness could be expected in wave C, but a bullish reversal should be expected as soon as it ended.

In terms of price, we thought “BAC may slide to $26 – $25 a share, before the situation starts to improve.” The bulls actually took the wheel at $22.66 on December 24th.

Yesterday, the stock rose by over 7% and closed at $28.45. This time, the market’s reaction to Bank of America’s record Q4 report was unanimously positive.

Bank of America climbs 7% after record Q4 earnings

The fact that the bullish reversal occurred over 20 days ago once again proves that “the habit of the market is to anticipate, not to follow.” The market was anticipating investors’ positive reaction to the bank’s earnings report.

Now, once a correction is over, the larger trend resumes. BAC was clearly in an uptrend prior to March, 2018, and the decline from $33.05 to $22.66 is corrective. So, we can expect this positive reaction to continue and eventually lift the stock to a new high.

Bank of America – The Bigger Picture

However, in less than a year Bank of America demonstrated that record profits don’t always translate into a rising stock price. Besides, simply extrapolating the current trend of rising earnings into the future to justify higher prices can be very dangerous. That is how stock market bubbles form.

That is why we need to put the recent price action into proper context. The weekly chart below shows where the plunge to $22.66 fits into the big picture.

Bank of America Elliott Wave pattern coming to an end?

The weekly chart reveals the structure of BAC’s recovery from as low as $4.92 in December, 2011. It can easily be seen as a five-wave impulse, developing within the parallel lines of a trend channel, whose wave (5) has just begun. The five sub-waves of waves (1) and (2) are also clearly visible.

According to the Elliott Wave theory, every impulse is followed by a three-wave correction in the opposite direction. If this count is correct, wave (5) can be expected to lift Bank of America stock to the area between $35 and $40 a share.

Investors are likely going to keep riding this earnings-inspired rally for a while. On the other hand, once wave (5) exceeds the top of wave (3), we should be very careful. The support area of wave (4) near $23 would be a natural target for the anticipated three-wave correction.

2018 was the best year in Bank of America’s history, but the stock finished the year down 17% anyway. Remember that when everything looks rosy near the top of wave (5).

Did you like this analysis? Our Elliott Wave Video Course can teach you how to uncover similar opportunities yourself!

Disclosure: The author holds a long position in BAC stock.



Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

UnitedHealth Stock Looks Strong Despite Uncertainty

Whether Obamacare is unconstitutional or not is up to the policy makers, but the uncertainty surrounding the matter caused a broad selloff in the healthcare sector. Cigna, Humana, CVS Health and UnitedHealth lost a significant chunk of their respective market caps after the DOJ sided with a December 2018 Texas district court ruling that the…

Read More »

The Elliott Wave Pattern behind Disney ‘s 30% Gain

Depending on the amount of time a position is kept open, traders can be separated into three categories: scalpers, day traders and position traders. The third group is known for holding a position for weeks, months or more if required. That group was recently rewarded by the sharp surge in Walt Disney stock. A little…

Read More »

BURL Stock Approaching a Dangerous Area

Burlington Stores Inc. is a branded apparel retailer, which operates approximately 670 stores in the United States. The company, founded in 1972, was taken private in 2006, only to re-emerge as a public entity again in 2013. And while the company’s business performance has been steadily improving in recent years, BURL stock rose in tandem.…

Read More »

NetEnt stock Looking for an Elliott Wave Bottom

NetEnt AB, based in Stockholm, Sweden, is a leading global provider of digital distributed games and gaming systems to online casino operators. It is also a good example of a company, whose shareholders became a victim of the market’s vicissitudes. NetEnt stock reached an all-time high of SEK 88.53 on June 1st, 2016. Less than…

Read More »

Synchrony Financial Draws Bullish Elliott Wave Pattern

Synchrony Financial spun off from General Electric less than five years ago, but its shareholders have already experienced plenty of market turbulence on their own. 2018, for example, was nothing to brag about. The stock plunged from an all-time high of $40.59 in January to as low as $21.78 in late December. And as it…

Read More »

Chipotle Stock Bulls Aiming at $900 a Share

The last time we wrote about Chipotle Mexican Grill, the stock was hovering around $470, following a rally from $248 in six months. The company was recovering from its 2016 E.coli, salmonella and norovirus outbreaks and Wall Street was once again embracing Chipotle stock. However, instead of joining the bulls right away, we decided to…

Read More »

General Mills Stock Up by a Third in Three Months

General Mills stock plunged by 50% in the second half of 2018, following a decline from its July peak of $72.95. So, when the stock touched $36.42 in late-December most investors were not exactly optimistic about it, to put it mildly. On the other hand, the Elliott Wave analysis of GIS‘ daily price chart, published…

Read More »

More analyses