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Chart of the Day: Bank of America Lags in a Strong Sector

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Is BAC more likely to play catch-up from here, or will it continue to underperform?

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Bank of America (NYSE:BAC) has been a trader's dream and an investor's nightmare over the past four years. The stock has had three separate instances where it has doubled or nearly doubled in that period, but the stock has also seen some terrific falls. Here is the four-year chart, essentially showing BAC since the March 2009 low:


Four-year daily chart of BAC, Courtesy of Bloomberg
Click to enlarge

The March 2009 to September 2009 rally was the most impressive, coming off the bear market lows. However, the stock has been a major laggard since then. The financials sector is trading at its highest level since 2008, but BAC is almost 50% below its April 2010 high near 20.

So is BAC more likely to play catch-up from here, or to continue to underperform?

First off, if a stock continues to find sellers while the rest of the sector rallies, this is generally a negative sign going forward. But zooming in on the one-year chart, there are a few other signs of concern:


One-year daily chart of BAC, Courtesy of Bloomberg
Click to enlarge

BAC had a very strong run from late July 2012 to January 1, 2013, rising 75% in less than six months. However, in the past two months, the stock has shown declining momentum, as shown by my arrow on the RSI panel at the bottom of the chart. After a brief sell-off on weak earnings in mid-January, the stock made a minor new high above 12 in February, which that quickly failed.

Today, the stock is actually one of the few financial stocks down on the year (closed 2012 at 11.61), giving mutual fund managers even less reason to own the stock here. Both the 50-day moving average and the close of 2012 are at 11.61, which I expect to be stout resistance for the stock in the near-term.

Though some fall for the appeal of the "cheap" nature of BAC (price / tangible book much below peers), I view the price action as indicating that market participants are least trusting of BAC's balance sheet among the big banks. In short, BAC looks like a classic value trap to me.

This item by Enis Taner was originally published on RiskReversal.com.

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No positions in stocks mentioned.
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