Shares of large-cap U.S. banking stocks as well as other financial stocks rallied on Wednesday, helping push the broader stock market higher for another day. Among the stocks rallying was Bank of America Corp (NYSE: BAC ), which as a result bounced off a well-defined technical support area. Traders and active investors now have a bullish trade setting up in BAC stock.
As I often discuss in this here column, when institutional investors - i.e. the investors that move the markets - allocate capital, they for the most part don't just buy one stock, but rather diversify among a theme, sector or industry group. To wit, Wednesday's rally in the financial stocks; both large-cap and small-cap banks lifted, as did insurance stocks, credit cards and more.
Next, let's note that the financial sector currently makes up a little more than 14% of the entire S&P 500 and is the second largest sector of the index. The financials have shown some marginal lagging over the past few weeks/months and if they can now wake up then the broader market would get even more bullish sponsorship.
More than anything, however, I am looking at this latest rally in financials as a group/sector rotation move and thus want to allocate some fresh trading capital there.
BAC Stock Charts
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Moving averages legend: red - 200 week, blue - 100 week, yellow - 50 week
On the multiyear weekly chart, we see that although BAC stock did "correct" and slip into a consolidation phase in early 2018, all in all it has held two key technical support areas: 1. its yellow 50-week simple moving average and 2. a simple diagonal support line as marked by the blue arrow.
From an intermediate to longer term perspective through the lens of technical analysis it is difficult to get structurally bearish this stock as long as it holds these simple support lines.
Click to Enlarge
Moving averages legend: red - 200 day, blue - 100 day, yellow - 50 day
On the daily chart, we see the multimonth consolidation phase a little better. Note that BAC stock all along has held its red 200-day simple moving average as support. While one day does not make a trend, the broader financials rally on June 6 led BAC stock to rally off both horizontal support and the 200-day moving average to the tune of more than 3%.
While upside here could quickly see the stock into the $31-$32 area as next targets, what I find notably more intriguing about this set up is the well-defined support area. Any bearish reversal here, particularly a break and hold below the $28.80 area, would be a no-brainer stop loss signal.
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