Bank of America - A Beautiful Short Sale
I was a fervent supporter of Bank of America after its bailout when, by process of government bailouts, was near immune to any further decline in its mortgage holdings. Today, however, I’d advocating the opposite play, this thing looks prime for a short bet.
Let’s Talk BOA Basics
As if a price to earnings ratio of 38 doesn’t seem to bubbly to anyone, it’s nearly twice the average for the S&P 500. The S&P index, even today, appears overvalued. BOA, as a mature business, in a mature sector, with hardly any notable and quantifiably valuable assets seems even more overpriced.
On The Rebound
Generally I like to see solid rebounds like Bank of America had encountered, but today it’s starting to look overbought. The stock paced slowly to the top of the chart, although it has yet to make it back to even half its post credit crunch highs. Its a solid rebounder, but I think it will be very quick to fall.
Let the Technicals Voice Their Opinion
I’ve outlined the stock’s current trend. It is healthy no doubt, until you see the incredible amount of resistance hiding overhead at $18 per share. Also, you have to consider the RSI, which is showing decay in strength as the price tries higher. And, while I’m not big on chart patterns, you might call the recent price action a triple top.
When I’d Buy and Sell
I’d buy after traders remorse above $18, that is, rising above $18 before returning to $18 then bouncing higher. I’d sell right now, or after the recent action turns into a full blown evening doji star pattern. If you’re in short, ride the wave down to the bottom of the current trend. If you’re going long, sorry, I have no input for you.
I would be careful shorting this stock. BAC has a strong relative strength, especially since John Paulson’s large purchase. The target price still remains well above current price.
I wouldn’t buy BAC right now, Ken Lewis himself said it would be difficult to make money in the second half of ‘09. Add mounting debt on top of poor fundamentals and you have a nationalization candidate
Agreed. The Market PE is historically overvalued (17 on the S&P). I still think we have a technical objective of 1055 on the S&P, which may push a correction later into October and leave some of these option traders empty handed. However, many indicators are beginning to suggest that we are right on track for a mid September correction. I think BAC may be a good shorting candidate, but not quite yet.
Great Post, I know shorting a stock is different, but Bank of America has found a use for Short Sales other than denying them for people in foreclosure. Let us hope they correct their situation soon on both fronts.,.