Bank Of America: Here's How The Bullish Channel Might Play Out

 About: Bank of America Corporation (BAC), Includes: KBE, XLF

Summary

Bank of America is trading in a bullish channel that puts resistance at $27 (mid-term) and $28.50 for the top of the channel.

Bank of America has broken its 7.5% range set in January and has traveled nearly the distance in that range (the $25 to $26) zone.

Since BAC is moving on momentum, monitoring momentum indicators will be key going forward to ensure higher prices match higher momentum levels.

Thanks to President Trump, we've seen a bump in stocks once again. Bank stocks like those listed in the SPDR S&P Bank ETF (NYSEARCA:KBE) and the Financial Select Sector SPDR ETF (NYSEARCA:XLF) are rallying and of course a big winner is Bank of America Corporation (NYSE:BAC).

With these rapid and unprecedented gains, it's important to have a risk management strategy in case the market turns.

In full disclosure, this analysis is not a recommendation to buy or sell at a specific level. I'm not a financial advisor. My goal is to help you identify areas of risk in your portfolio, identify areas of resistance and support, and areas where volatility is likely to rise.

If you receive me articles via email as a follower on Seeking Alpha, you'll know on January 24th, we discussed the resistance area of $25 to $26 upon a break of the 7.5% range that BAC was stuck in at that time. I'm not going to rehash the article, but I'd like to show how momentum stayed strong throughout this move higher.

Here' the chart below and three key points from the January article:

• If BAC stock breaks out of the current 7.5% range, this range-break can sometimes, (not always) propel the stock to travel the length of the range.
• As a result, a range-break could translate to a 7.5% move higher to the $25 area.

• A higher move in RSI could correspond to BAC price break to the $25 price target.

The Relative Strength Index (RSI) is a momentum indicator and an overbought-oversold indicator.

In the chart above (from January), the bounce off the 50 level is a bullish signal.

Typically, in a bull-run, we want to see RSI above 50 for a strong move higher. If it breaks below 50, we typically get a pullback. However, if RSI breaks below 40, we tend to see a more significant correction.

Updated Daily Chart Bank of America:

• We can see the breakout out of the 7.5% range (at the moment) stalling a little $25.50 level of resistance.

• The pink trendlines represent the bullish channel BAC is currently trading within; the bottom pink line connects the lows and the top pink line connects the highs of the move.

How I drew the line: I took the trendline from the lows, and "cloned" it (so to create the exact-same angle). Next, I moved the newly cloned pink line to the top of the price action to create the top pink trendline. By having both pink lines at the same angle, it gives us a more accurate picture of the top and bottom of the bullish channel.

• The blue line (also cloned from the bottom trendline) represents a near-term resistance of the $27 area.

• The channel top (pink trendline) comes in around $28.50 (at the time of this writing).

At both the blue and pink trendlines ($27 to $28.50), BAC could see an increase in volatility and stops (take-profit orders) and it's important investors have a risk-management strategy as we approach these levels.

Matching RSI Momentum with Price Action:

When I worked on a trading desk a few years back, one of the best pieces of advice I received from a successful FX trader was "always look to the left on a chart."

In other words, as price or momentum moves higher or lower, watch to see if the current levels are passing the prior levels to the left. If the current levels are not passing levels to the left, resistance is likely to follow, perhaps a pullback, or maybe price might need a few attempts to pass the levels on the left.

• With RSI, we can see momentum broke the blue trendline connecting the RSI highs in momentum (bullish sign).

• Also, we bounced off the 50 line (green line) as we highlighted the necessity in the January article.

What to watch for:

• Be sure to match momentum with price so that RSI makes higher highs while BAC makes higher highs.

• As a result, we want to watch to see RSI move higher and trade into the yellow zone, (passes the prior highs in January & February).

Opinion: What Fidel Castro’s death could mean for investors

How much of the thaw under President Obama will Donald Trump reverse?


How will U.S.-to-Cuba cruises be affected by the death of Fidel Castro?

For years, analysts have awaited the passing of Fidel Castro as the watershed moment that would launch a new era in U.S.-Cuban trade relations and open the island to investors.

So it’s ironic that, now that Fidel has died, the man who really counts is the incoming leader of Castro’s geopolitical archrival: Donald Trump.

On the surface, it seems like Trump will be terrible for U.S.-Cuban economic relations — and the U.S. hotel, cruise-line and banking companies that want to continue along the inroads opened up by the thawing of relations under President Barack Obama.

–– ADVERTISEMENT ––

After all, Trump and Vice President–elect Mike Pence campaigned hard in Florida against reform in U.S.-Cuban relations — unless there are further concessions from Cuba on political and religious freedoms in the country.

“All of the concessions Barack Obama has granted the Castro regime were done through executive order, which means the next president can reverse them, and that I will do unless the Castro regime meets our demands,” Trump said at a Florida campaign event in September.

Plus conservative elected officials from Florida, such as Marco Rubio, have long opposed a thawing of relations. Now emboldened by the Republican sweep in the November elections, they will no doubt ramp up pressure to reverse changes put in place by Obama, according to Cuba experts.

“I would think the pressure from the Republicans to roll back many of the executive orders that Obama put into place will be very strong,” said Riordan Roett, director of the Latin American Studies Program at Johns Hopkins University’s School of Advanced International Studies.

This was Trump’s reaction on Twitter to Castro’s death:

 Follow

Donald J. Trump 

✔@realDonaldTrump

Fidel Castro is dead!

8:08 AM - 26 Nov 2016

 
•  94,92294,922 Retweets
 
•  191,227191,227 likes

But a closer look shows that Trump might not be so bad for U.S.-Cuban relations for four reasons:

First, it’s not really even clear what Trump’s policy on Cuba is. “If you know, I wish you would tell me,” said Roett.

A big part of the confusion comes from the fact that Trump has developed a habit of backing away from many of his promises —- from the complete repeal of Obamacare and the prosecution of Hillary Clinton to the wall with Mexico and his hard-line policy of rounding up all illegal immigrants. His tough policy on Cuba could be another campaign promise that easily falls away.

 

Fidel Castro, former Cuban strongman, dies

(3:29)

Fidel Castro has died at the age of 90. The Cuban leader animated millions with his promises of democracy, social justice and economic progress. But by the time he resigned in 2008 as Cuba’s president, he had come to embody all the contradictions of his movement. Photo: AP

Next, polls show that the majority of Cuban-Americans now support a normalization of relations with Cuba, as Andrew Otazo, executive director of the Cuba Study Group, has pointed out. This undermines pressure from Florida politicians for a rollback of Obama reforms — like Obama’s easing of restrictions on travel and remittances to Cuba. “There has been a big historical shift in opinion,” said Otazo.

And at this point it could also be tough for Trump to take away licenses to do business in Cuba granted to airlines like Southwest Airlines LUV, +0.17% , JetBlue Airways JBLU, +0.38% , American Airlines AAL, +1.04%   and United Continental Holdings UAL, +0.30% ; cruise lines like Carnival CCL, +0.48%  ; and hotel chains like Marriott International MAR, +0.56% “This is hazy legal territory because these companies started operations in Cuba in good faith. So they could take legal action if license are revoked,” said Otazo.

From the MarketWatch archive: 16 ways to profit from better U.S.-Cuban relations

ETFs: Track the Herzfeld Caribbean Basin Fund CUBA, +0.79%  , with interactive charting, at BigCharts

Besides, it’s not even clear that Trump, a businessman at heart, would want to shut down opportunities to do business with Cuba. As a private real-estate operator, he’s explored doing business in Cuba in the past. “Mr. Trump may not deny his supporters the opportunity to make money, and that may color the form of engagement going forward,” said Larry Catá Backer, a professor of law and international affairs at Pennsylvania State University.

What about Cuba?

With Fidel gone, is the country now on a faster track toward capitalism that could improve investment opportunities? Well, yes and no.

Certainly, it’s economy could use a boost. Following a growth spurt in 2015, when GDP advanced by 4.3%, the Cuban economy has cooled off. The economy of a key geopolitical ally, Venezuela, is in disarray. That country has reduced its subsidized exports of oil to Cuba.

Now, the passing of Fidel could theoretically speed up reform, even if Fidel has had little direct involvement in policy decisions since turning power over to his brother, Raúl Castro.

“The weight of Fidel Castro, whether he was directly involved in the government or not, certainly played a role in the pace of reforms,” said Tomas Bilbao, a Cuba policy expert, “so his passing should offer an opportunity for reformers in the government to accelerate the pace of reforms.” Bilbao, who runs a consulting firm called Avila Strategies, advises clients on how to protect their brand reputations during entry into controversial markets, like Cuba.

That said, in the near term, hard liners inside the government could put a lid on change in the interest of maintaining stability in the country following the death of Castro, said Bilbao. Besides, even with Fidel gone, the old bureaucracy will be in place — and it will remain resistant to change. “The decision makers come from the revolutionary generation, and they believe in the revolution and socialist model put in place by Castro,” said Roett.

The bottom line

So what’s the key take-away here for investors? Most likely, a thawing in U.S. relations with Cuba will continue, and gradual progress toward a market economy inside Cuba will proceed as well. So it makes sense for investors to have exposure to the country.

But I’d only do so with companies that look interesting for other reasons, like solid insider buying, positive business trends — or as contrarian plays because they have sold off so hard.

Here are some suggestions:

Cruise lines

Cruise lines will continue to benefit from the improved U.S. relations with Cuba — which have eased travel restrictions. But that’s not the only reason to like them. I’ve suggested two of the three main cruise lines in my stock letter Brush Up on Stocksin the past few months in part on the basis of bullish insider buying.

Norwegian Cruise Line Holdings NCLH, +1.50% and Royal Caribbean both saw significant insider buying in August and September. The buying happened below where these stocks currently trade. But insiders rarely buy for short-term moves, so there are probably more gains ahead.

Norwegian, for example, has a younger fleet than its competitors, which means its ships are more attractive and more cost-efficient.

Facebook Is Poised for a Breakout -- Here's How to Trade It

Shares of Facebook  ( FB) appear to be on the verge of a powerful breakout. The stock closed Monday with a healthy 2% gain with the help of a nice jump in volume.

 

This impressive action has pushed FB to fresh July highs and sets the stage for a Once the $121 area is convincingly taken out, the stock has plenty of room to run higher.

 

Click here to see the below chart in a new window. 

 

 

Back in late April, Facebook exploded to the upside following its first-quarter earnings report. The stock surged over 7% on the positive news but was unable to make any further headway. Two weeks later, after just barely reaching a new monthly high, an ominous top was beginning to form. By the end of May, after just over four weeks of dull post earnings action, it was becoming obvious that Facebook was completely exhausted and would need a deep pullback before getting back on track.

 

Facebook drifted lower through the early part of June, but the downside remained well-contained despite the ominous April/May top. It took the Brexit selling wave to finally push FB down to a major support zone. As shares reached the April 28 earnings breakout gap, which marked the lower band of the support zone, the stock had pulled back 10%. After the dust cleared on the morning of April 28, patient investors where taking advantage of the low-risk entry opportunity, quickly reversing the selloff in the process.

 

At the start of last week, Facebook had rallied 10% off the Brexit low. The stock spent the entire week consolidating the gains as it held in a narrow range just above the 50-day moving average. On Monday, Facebook broke out of this healthy pattern and is now set up well for a new bull leg.

 

In the near term, Facebook investors should take a much more positive view of the stock heading into next week's earnings report. The stock should be considered a low-risk buy near current levels. A close back below $116 would take out last week's low and would reverse Monday's breakout. On the upside, once past the April/May highs, Facebook has plenty of room to run. The stock could travel quite a ways before re-entering overbought status.

 

Of note, Facebook is scheduled to report second-quarter results July 27 after the close.

 

From a fundamental perspective, Facebook is a holding in Jim Cramer's Action Alerts PLUS charitable portfolio. Cramer and Research Director Jack Mohr wrote on Monday that they sold a portion of their Facebook position, which was up about 85% from their purchase price. "The move was driven not by any change in our fundamental thesis, but rather to right-size our exposure and avoid the temptation of succumbing to greed following a parabolic run," they wrote. They added:

We want to make it clear that Facebook remains a core holding and among our favorite long-term investments. The company knows how to execute, understands what its consumers want and has proven adept at growing consistently, rapidly and profitably. The stock's tremendous rally reflects much of these capabilities, however, with expectations already rising steadily ahead of the print as prominent sell-side analysts raise their estimates ahead of next Wednesday's earnings release. We expect the name to emerge as more of a battleground in the near term and prefer the certainty of some tangible profits near term over the risk of event-driven volatility. We leave our $145 price target unchanged.

By Gary Morrow

Source: https://www.thestreet.com/story/13644001/1/facebook-is-poised-for-a-breakout-here-s-how-to-trade-it.html