Bank of America Earnings Report to Test Value Levels

Bank of America Corporation (BAC) is the second-largest of the four "too big to fail" money center banks with total assets of $1.776 trillion at the end of the second quarter, down from $1.784 trillion at the end of the first quarter. Total assets for the four "too big to fail" banks were $7,166 trillion at end of the second quarter, down from $7.256 trillion at the end of first quarter.

There seems to be a correlation between total assets versus the unwinding of the Federal Reserve balance sheet. At the end of the second quarter, the unwinding totaled $195 billion versus the decline of $90 billion in total assets of the four biggest banks. The four big banks control 41% of total assets, and the unwinding is 46% of the total. This is a major factor of third quarter earnings and implies that banks may miss on the revenue line.

Bank of America stock closed Thursday at $28.36, down 3.9% year to date and in correction territory at 14.2% below its March 12 high of $33.05. The stock is 2.6% above its 2018 low of $27.63 set on July 6. Analysts expect Bank of America to post earnings per share of 62 cents when the bank reports third quarter earnings before the open on Monday, Oct. 15. Our nation's second largest bank provides credit cards, asset management and other related services. Estimates have been reduced over the past 30 days, but that could be priced into the stock weakness this week.

The daily chart for Bank of America

Bank of America stock is below its 50-day and 200-day simple moving averages of $30.66 and $30.51, respectively, but the zone of the lower two horizontal lines has held. These are my semiannual and monthly value levels of $28.47 and $27.99, respectively. The highest horizontal line on the chart is my weekly risky level at $29.86. Above the chart is my quarterly risky level of $38.11. Below the chart is my annual value level of $20.93.

The weekly chart for Bank of America

The weekly chart for Bank of America is negative, with the stock below its five-week modified moving average of $29.97. The stock is well above its 200-week simple moving average at $21.27, which is also the "reversion to the mean," last tested during the week of Sept. 30, 2016, when the average was $15.12. The 12 x 3 x 3 weekly slow stochastic reading is projected to fall to 51.73 this week, down from 63.67 on Oct. 5.

Given these charts and analysis, investors should buy Bank of America shares on weakness to my semiannual and monthly value levels of $28.47 and $27.99, respectively, and reduce holdings on strength to my weekly risky level of $29.86.