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What the Heck Is Bank of America Stock Doing?

InvestorPlace logo InvestorPlace 4/18/2017 Anthony Mirhaydari
<p>People use ATM machines outside a Bank of America branch in Washington DC</p>© MICHAEL REYNOLDS/EPA

People use ATM machines outside a Bank of America branch in Washington DC

Shares of Bank of America Corp (BAC) are suffering a wild ride in trading on Tuesday. Specifically, BAC stock is bouncing around within a 3%-wide trading range after plunging into the red after initially opening higher.

This was the wild result after BofA reported better-than-expected earnings results before Tuesday’s bell.

Earnings of 41 cents per share were 6 cents ahead of estimates on revenues of $22.45 versus the $21.77 expected (up 6.9% from last year). Average loan balances increased 6% to $819 billion while net interest income increased 5% to $11.1 billion.

Investors seemed disappointed when management’s comments on the conference call that mortgage originations declined, echoing the drop in mortgage activity cited by Wells Fargo & Co. (NYSE:WFC) last week.

FRED data© Provided by InvestorPlace FRED data

There was also a continued drop in loan loss reserves, which will make the balance sheet vulnerable to a souring of loan performance should credit risks rise.

Moreover, the bank focused on investment banking activity as consumer lending activity seems to be slowing, no just mortgage loans but commercial and industrial loans across the economy (dropping at a pace associated with recessions, by the way as shown above). Bank of America’s total global markets sales and trading revenue increased 23% from last year to $3.9 billion. And fixed income revenue increased 29% from last year to $2.9 billion.

Wall Street appeared to be pleased with Bank of America’s progress, sending shares higher within the first few minutes of trading. However, a wide market pullback sent BofA and its banking brethren back in the morning.

Fast-forward a few more hours, and shares are climbing into the black in late afternoon trading.

On a technical basis, BAC stock is riding on key support near $22 per share going back to early December.

BAC stock chart© Provided by InvestorPlace BAC stock chart

With shares below both the 50-day and 20-day moving averages, the short-term trend is pointing lower. A breakdown here would setup a decline to the 200-day moving average, which would be a 13%-plus decline in Bank of America from here.

Anthony Mirhaydari is founder of the   Edge   (ETFs) and   Edge Pro   (Options) investment advisory newsletters.   Free two- and four-week trial offers have been extended to InvestorPlace readers.

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