Bank of America Corp (BAC) Stock Is an ATM Machine Stuck Open
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Generally speaking, traders’ short-term reactions to earnings are more gambling than investing. First we don’t know the numbers that companies will deliver. Then we don’t know how Wall Street will react to those numbers. Today Bank of America Corp (NYSE:BAC) reported earnings, and the stock is down 1.6%.
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The comments from Goldman Sachs Group Inc’s (NYSE:GS) conference call caused a second wave of selling. Both banks had shrugged the initial dip before those comments came out.
Traders’ expectations may have been lofty going into the earnings, so a few red days won’t spook me. Indeed most analyst ratings were outperform on BAC stock, so it’s not surprising to see a few letdowns today.
It’s also important to note that last week, JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc (NYSE:C) earnings reactions set a negative tone coming into this week’s set of earnings. Markets sold those two stocks down on decent news on Friday.
Nevertheless, today’s price action doesn’t change the overall macro on banks. They recently told us that they will be defending their own stocks with financial engineering. So BAC is likely to buy back more stock on dips. The dividend will also lend tremendous support especially if the equity markets in general maintain their upward momentum.
I am long Bank of America stock, and this dip on the headline does not scare me. Mind you, my trading styles allows room for error, and that is why I prefer sell risk in BAC options rather than owning the equity. This way, dips like these don’t even register on my bad-trade-meter.
Fundamentally, BofA is incredibly cheap even after this massive rally. After today’s dip, the stock remains over 60% higher than 12 months ago and that doesn’t mean that it has gone too far yet. Its price-to-earnings ratio is 14 and its price-to-book is 1. So it cannot be a mistake owning the shares here let alone at my risk levels, which are much lower still. As long as the overall equity macro remains relative unscathed then BAC dips will be bought or, in my case, used to generate income.
Technically, BAC stock broke out from around $23.30 into this higher tiered level. It failed and now is on its way back to revisit the springboard level. There, bulls and bears are likely to fight it out hard, which should create a temporary stalemate. While I don’t expect it to be a hard line in the sand, I can count on it to be a rubber-band support zone to slow the selling down.