A picture is worth a thousand words. In the case of Bank of America (BAC), I would say it is worth a million words. One look at the chart shows how investors are feeling about this bellweather of international finance. As always, we will discuss what this means going forward and whether or not it is time to dip your toes in the water yet.
The Chart
It doesn’t take a PhD in technical analysis to see that this chart looks putrid. There is nothing there suggesting that anymore than an oversold bounce is on the horizon. The stock’s RSI is at 26, which indicates oversold territory, but that alone is not reason to put your hard-earned dollars to work here.
The moving averages are both downward-sloping and well above the current quote, which will act as huge overhead resistance levels. Solely based on the technical picture, I would not touch this stock with a ten-foot pole, since the best you can hope for is a small bounce by reading the chart.
Fundamentals Aren’t Stellar Either
Return on Equity (ROE) is a great measure of the health of banks and BAC stacks up pretty poorly compared to its competitors on this measure. Its main competitors were also hurt by the financial crisis, but have done a much better job of rebounding. Check out this table to see what I am talking about:
| Bank | ROE |
| Bank of America | -1.46% |
| Citigroup | 5.95% |
| J.P. Morgan | 11.43% |
The acquisition of Countrywide Credit a few years ago is still haunting the bank and might for years to come. The company is still laying off workers, which is a sign of continued distress. The big question is if this is fully discounted in the stock price. I am guessing that it is not and that there is more downside.
Add to this the fact that the European banking sector is collapsing and I think investors will be staying away from BAC for months at least. This is the kind of situation where I would not trust published earnings estimates because so much is uncertain due to macro factors. For example, a month ago the company was supposed post a profit of $1.04 per share for this year. Now it is expected to lose 17 cents per share. That is the behavior of a classic value trap.
The bottom line is that it is dangerous to buy because you think it is cheap based on its p/e because you can’t trust the “e.” This is a stock that I would surely avoid now even if you think you are getting a great value here. It’s just not worth the risk.
Getting Technical: Bank Of America Has Seen Better Days is an article from: 
