Friday, 17 March 2017 was a tough day for BAC stock. It completed another day of lacklustre performance, with a slowly tapering trendline that is looking a little ominous. Indeed, BAC stock remains well above its 50-day moving average of $23.79, and at least $6.50 above its 200-day moving average of $18.35. What is surprising is that expectations of a Fed rate hike were propelling the stock to higher levels, but the week of the rate hike, BAC stock has faltered. Its relatively flat performance has seen it trading in a tight range between $24 and $25 per share.
Why Are Bank Stocks Expected to Perform Well in the Current Economic Climate?
The Fed increased the federal funds rate by 25-basis points on Wednesday, 15 March 2017. The FFR is now at 1%, and this means that banks and financial institutions are going to benefit immeasurably from the first of what could be 3 rate hikes for the year. If forecasts are to be believed, the federal funds rate could reach 1.5% by the end of 2017. Bank stocks like Bank of America (BAC), Citigroup (C), JPMorgan Chase & Company (JPM), and others are going to continue their bullish performance moving forward. It’s not only interest rates that are expected to impact bank stocks this year, it’s the trifecta: interest rate hikes, deregulation and decreased corporate taxes. So far, the central bank has made good on its pledge to raise rates, and the federal government must play ball to get the other components of the economy on track.
Is Bank of America positioned to perform in the US?
Barring the short-term performance of BAC stock, there is a lot to be happy about. For starters, BAC is heavily invested in the US economy. We do not have any word as yet about the Q1 2017 earnings report of BAC, but when this report is provided, investors will have better clarity about which way the stock is moving. If the analysts are to be believed, April 14 is when BAC will release its earnings figures. Wall Street analysts are anticipating strong growth from BAC to $0.35 EPS from $0.28 EPS last quarter. Of the 33 analysts polled with Thomson/First Call, 26 of them have issued buy guidance on the stock. There are zero sell ratings for BAC stock. This is the clearest such indicator to binary options traders that BAC stock is a buy option. It’s just a little slow out of the gates after the Fed pulled the trigger.
How do we know that traders are going long on BAC stock?
The number of call options outpaces the number of put options by a ratio of 2:1. The key driver of call options or put options will be the quarterly earnings reports. As for April projections, analysts are pricing in a 5.4% movement after Q1 figures are released. If this holds true, BAC stock will be trading above $26 per share, and at the lower end the support level looks to be around $23.85 per share. The current resistance level for the stock is around the $26 handle, but that still remains $1.14 away. From a technical perspective, a good region to hold would be around $24.50 per share. If profit-taking kicks in, the stock could move as low as $23.50 but ultimately it is a value-driven stock with plenty of momentum.
Binary options traders have momentum on their side with call options on BAC stock. It’s going to be a little bit of a choppy ride until the quarterly earnings reports, but directional movement is clear.
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