Bank of America Mistake … Really?

Last week, I answered your questions concerning the length of our current bull market and compared it with others since 1932. Today I will answer the question, “Using your system, what were the trading signals for Bank of America before this week’s sell-off?” Keep in mind, I do not give buy or sell recommendations but will discuss signals many traders will be watching to help with their buy and sell decisions.

To answer this question, I designed a one-year chart for Bank of America (symbol BAC). I used weekly price bars, along with my blue signal line and the S&P 500 in the background, to see how BAC trades in comparison to the market. I have also included, in the bottom box, my favorite institutional buy and sell momentum indicator.

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When trading a particular security, I compare the security price action with the direction of the market. One can see BAC closely mirrored the direction of the S&P 500 (shaded tan area). This continued until the end of March when BAC dropped while the S&P 500 maintained its run. In technical analysis terms, this is called a divergence and signals possible price weakness ahead.

Referring to the chart, we can see traders began taking profits at the end of March when the price traded under my green trend line and blue signal line, accompanied by institutional selling (red bars). Those who used this system would have sold around the $16.50 area and would have bypassed the large price drop last week.

For buying, many traders will be watching for the price to close above a short- term trendline and my blue signal line, accompanied by taller green bars in the lower box, representing institutional buying that drove the price higher. Those who have taken their time to learn my systems have tools for better-educated financial decisions.

In a recent seminar, veteran economic professors who only use fundamental analysis scoffed at my buying and selling systems. Keep in mind, there is no system that is 100 percent. If anyone can send proof of how the fundamentals changed in late March, signaling strong sell signals, like with my systems, please send them my way-I would like to see them!

Sadly, this chart shows many (insiders) knew something many in the general public did not (as far back as the end of March) and sold. This helps to prove “there is an uneven playing filed” while investing in the market.

What should investors do to protect their “nest eggs”? Take the time to learn which technical indicators give the best signals for buying and selling for each of your securities. Know which indicators gave accurate sell signals in 2000 and 2008 and be prepared for when they show up in the future. It is not a question of if, but when. Will you be prepared?

I have taught many my buy and sell systems, and you can learn as well. If interested in learning my systems for your securities, sign up for my next workshop Tuesday, May 6, at John A. Logan College. Take the time to learn which indicators give the best signals for buying and selling for each of your securities.

This is not an open call to buy or sell BAC, but information to be used for educational purposes only. If you would like to see this strategy using your security, simply send the symbol and I may work them into a future column.

Plan your work, work your plan and share your harvest! Source: stockcharts.com, davidoengland.com

Disclosure: I do not hold any securities mentioned in this column.

 

2 replies
  1. John Minko
    John Minko says:

    I have a question about your institutional buy and sell momemtum indicator shown under the BAC chart. Is this a private indicator separate from Stockcharts? Do you offer on line classes that teach your systems of buy and sell signals. Thank you in advance.

    Reply
    • David O. England
      David O. England says:

      Mr. Minko,

      It is good to hear from you. The indicator is the Chaikin Money Flow. It is one of the three
      main indicators in my Simple Simon System.

      Do you offer on line classes that teach your systems of buy and sell signals.

      Yes, I offer a Free online course at my website davidoengland.com. Sign up today!

      For a quicker response, feel free to send your questions to my personal email eyeonthemarket@outlook.com.

      Thank You,

      David O. England

      Reply

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