Bank of America: Testing the Neckline

Written by Larince Zhang

Bank of America  ($BAC) will announce its earnings for Q1 2022 today (18th April) before market open. Last week, the performance of US bank stocks was mixed, with Goldman Sachs, Morgan Stanley and Citigroup all beating consensus estimates, while Wells Fargo reported lower revenue than expected following a fall in home lending and poor trading results despite high trading volumes.

Fig 1:(BoA) Quarterly Reported Sales and Earnings per ShareCNN Business

Market outlook for the upcoming announcement remains mixed. Sales revenue is expected to increase by 4.52% from the previous quarter (or up 0.87% from a year ago), to $23.1B. On the other hand, consensus estimates for EPS stands at $0.75, down –8.54% (q/q) and –12.79% (y/y) respectively. A fall in the company’s EPS would also mark its first decline since the final quarter of FY 2020.

In general, an interest rate hike by the Fed may benefit the banks, which could see net interest margin and net interest income increase, thus expanding overall revenue growth. In the previous quarter, BoA pointed out that for every 100 bp increase in interest rate, its net interest income and full-year EPS will increase by roughly $6.5B and $0.80 respectively.

In addition, BoA has one of the largest retail branch networks and is ranked among the top four US credit card issuers. It is also one of the top banks in terms of small business lending, retail mortgages and home equity lines of credit. This serves as a competitive advantage for BoA among its peers.

Nevertheless, geopolitical risk is a downside factor that cannot be ignored. The Russia-Ukraine conflict and the associated sanctions may further disrupt global supply chains, and the economy may risk being tipped into recession during rate hiking by central banks. An inversion of the yield curve may provide a leading indication of recession (currently the US 2-year rate is at 2.46% while the 10-year rate is at 2.83%).

Technical Overview:

The Weekly chart shows a head and shoulder price pattern, in which #BankofAmerica is currently testing the neckline at $37.80. The company’s share price remains attached to the lower Bollinger Band, indicating ongoing downward pressure. However, the #BankofAmerica share price will have to break the said support as well as the 100-week SMA, before extending losses towards $34.00 (FR 50.0%) and $30.25 (FR 61.8%). On the other hand, the ‘shoulders’ at $42.50 serve as an immediate resistance, followed by the peak of the ‘head’ at $50.11.

About the author

Larince Zhang

长达八年的实盘操作与市场分析经验。涉足的金融产品包含外汇、大宗商品、股指、商品期货、指数期货以及股票。大学主修金融学,秉持着学以致用的心态务必把课堂上所学的知识与临场实践经验相结合。 经过多年交易经验的积累与总结,坚信“大道至简”四字箴言。价格的变动即是幕后人为交易买卖所驱使。坚信市场考验的不是技术,而是人心。唯有正确的交易认知、缜密的策略布局与严谨的资金管理,方才是成熟交易的真谛。

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