Bank of America Begins Its Next Powerful Move Higher

Bank of America is one of the top performing stocks in Tuesday's powerful move in the financial sector.

A Bank of America branch

Bank of America  (BAC) is breaking out of a 10-week consolidation Tuesday. The stock is up just shy of 3% and is beginning to put some distance on a very heavy resistance zone near $23.50. As Bank of America builds on Tuesday's momentum, a major support zone is being left behind. With a base this solid underneath, the stock is set up well for more upside.

Bank of America first reached the $23.50 area back in early December as the initial phase of the post-election rally began to run out of steam. After surging more than 35% from its Nov. 8 low, the stock was in need of a healthy rest. Over the last 10 weeks, that's exactly what Bank of America got. The stock moved sideways during this phase while its extremely overbought MACD (moving average convergence/divergence) indicator returned to neutral. Another positive was Bank of America's ability to maintain its string of higher monthly lows. As we enter mid February, the stock is tracing out its 8th straight one. Certainly a very bullish set up, and a strong indication of more upside ahead.

In the near term, Bank of America investors should take on a more positive view of the pattern. The stock now has a major support zone developing that runs from the $24.00 to $23.00 area. It would take a close back below the $22.40 area to derail Tuesday's breakout. On the upside, Bank of America has plenty of room to run. A fresh rally leg could carry shares all the way up to the $26.50 area without running into significant resistance. This key level marks the stock's 10-month moving average. Bank of America has been trading below this long-term indicator since October of 2008. It would take another 10% of upside from current levels for this area to be reached. Profit taking here, at least partial, would be wise.

Click here to see enlarged chart in a new window.

READ MORE: United Technologies Is Poised for a Breakout

By Gary Morrow

Source: https://www.thestreet.com/story/14002007/1/bank-of-america-begins-fresh-rally-leg.html

Fed raises rates for the second time in a decade

Federal Reserve officials, amid signs that the U.S. economy soon could shed its long period of stagnation, approved the first interest rate hike in a year Wednesday and said it foresees three more increases next year.

The stock market reacted calmly, while bond yields and the dollar rose. The yield on 2-year Treasury's hit its highest level in since August 2009.

The Federal Open Market Committee raised its target range from a range of 0.25 percent to 0.5 percent to 0.5 percent to 0.75 percent. The overnight funds rate currently sits at 0.41 percent.

The committee also approved a quarter-point increase in the discount, or primary credit, rate, from 1 percent to 1.25 percent.

The decision was unanimous. Previous meetings had featured dissents from as many as three members who felt the Fed should resume a rate-hiking cycle it began in December 2015.

In addition to approving the much-expected increase, the FOMC also indicated a higher rate than projected back in September when it last released the quarterly look ahead. The committee now expects three rate hikes in 2017, two or three in 2018 and three in 2019.

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In effect, the Fed added one more hike during the entire period, with the longer-run target up to 3 percent from 2.9 percent.

"What they did was highly anticipated. There was a slight surprise in next year, looking at an additional rate hike," said Myles Clouston, senior director of Nasdaq Advisory Services. "Overall, the Fed remains pretty steady overall, looking at gradual raises in interest runs in the long run."

The closely watched dot-plot also indicated a somewhat more ambitious future for hikes.

However, the committee continued to emphasize in its post-meeting statements that the path higher will be "gradual." It also stuck with language indicating that risks to the Fed's forecasts remain "roughly balanced," and emphasized that future moves will be data-dependent rather than subject to a set schedule.

Lucas Jackson | Reuters

Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the announcement that the U.S. Federal Reserve had hiked interest rates for the first time in nearly a decade in New York, December 16, 2015.

The increase came with projections that economic conditions are changing.

On inflation, the committee said market-based measures remain low but have moved up "considerably," a word that was omitted from the November statement.

On the jobs market, Fed officials indicated that full employment is getting closer.

"The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation," the statement said.

That differed from November, when they included the more definitive "supporting further improvement in labor market conditions" language. There has been considerable discussion within the Fed about how close the labor market is to full employment, and this week's developments indicate that officials believe that condition is getting closer.

The move came with an incrementally more upbeat look at the economy. This week's statement said "economic activity has been expanding at a moderate pace since mid-year," an upgrade from November's assessment that growth had "picked up from the modest pace seen in the first half of this year."

Committee members lifted their expectations for GDP growth from 1.8 percent in 2016 to 1.9 percent, and 2.1 percent in 2017 against the previous estimate of 2.0 percent. However, 2018 remained at 2.0 percent while 2019 also was bumped up a notch, from 1.8 percent to 1.9 percent. The longer-run GDP projection remained at 1.8 percent.

Headline inflation expectations were little changed overall, with 2016 moved up from 1.3 percent in September to 1.5 percent in Wednesday's projections, but the longer-run outlook remained at 2.0 percent.

The Fed last hiked rates almost a year ago to the day — Dec. 16, 2015, to be exact — during a decidedly different time for the economy. GDP growth for the fourth quarter of 2015 was just 0.9 percent, and it was far from certain that inflation was heading toward the central bank's 2 percent target.

Markets initially welcomed the news then but then nose-dived, sending major stock averages just short of bear market territory in what would become a topsy-turvy year for geopolitics and growth.

A year later, things have changed significantly.

The economy has continued to trek toward full employment, with the jobless rate currently at 4.6 percent. Most inflation measures show the trend much closer to the Fed's benchmark as well.