Chart of the Day – $BAC Lags in a Strong Sector

Bank of America has been a trader’s dream and an investor’s nightmare over the past 4 years.  The stock has had 3 separate instances where it has doubled or nearly doubled in that period, but the stock has also seen some terrific falls.  Here is the 4 year chart, essentially showing BAC since the Mar 2009 low:

4 year daily chart of BAC, Courtesy of Bloomberg

4 year daily chart of BAC, Courtesy of Bloomberg

 

The Mar09 to Sept09 rally was the most impressive, coming off the bear market lows.  However, the stock has been a major laggard since then, as the financials sector is trading at its highest level since 2008, but BAC is almost 50% below its Apr 2010 high near 20.

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

First off, a stock that continues to find sellers while the rest of the sector rallies is generally a negative sign going forward.  But zooming in on the 1 year chart, there are a few other signs of concern:

 

1 year daily chart of BAC, Courtesy of Bloomberg

1 year daily chart of BAC, Courtesy of Bloomberg

 

BAC had a very strong run from late July to January 1st, rising 75% in less than 6 months.  However, in the past 2 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 selloff on weak earnings in mid-Jan, the stock made a minor new high above 12 in Feb, 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 ma 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 may fall to 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.