NEW YORK (MarketWatch) — Just because some high-profile investors have sold Bank of America Corp. shares recently doesn’t mean the average investor should follow. The charts suggest the stock might have some short-term lift.
The fund run by famed billionaire investor John Paulson disclosed it reduced its B. of A. /quotes/comstock/13*!bac/quotes/nls/bac (BAC 14.81, -0.03, -0.20%) holdings by 10% during the fourth quarter, while Warren Buffett’s Berkshire Hathaway /quotes/comstock/13*!brk.a/quotes/nls/brk.a (BRK.A 127,440, +165.00, +0.13%) /quotes/comstock/13*!brk.b/quotes/nls/brk.b (BRK.B 84.93, -0.03, -0.04%) sold its entire stake.
Before investors blindly follow their Wall Street heroes, keep in mind the sales were completed as of Dec. 31, when the stock closed at $13.34. It soared 6.4% the very next session, and the low so far this year has been $13.40.
In addition, the stock’s technicals are behaving like they did just prior to some significant upward spikes over the past couple of years.
The moving average convergence-divergence indicator, known as the MACD, is a trend-following momentum indicator that oscillates around zero. It is constructed using two exponential moving averages — the MACD line and the MACD signal line.
The indicator produced a “buy” signal over the last week when the MACD line crossed over the MACD signal line. More importantly, this crossover occurred with both lines north of zero.
Similar positive crossovers occurred on March 24, 2010, Oct. 9, 2009, and on the 15th and 28th of July 2009. After those crossovers, B. of A. spiked as much as 13% in less than three weeks, 9.1% in a week and 30% in less than two weeks, respectively.
B. of A.’s technical makeup looks a lot more like it did in July 2009 because of the recent appearance of a “golden cross,” which is when the 50-day simple moving average crosses above the 200-day simple moving average. The last “golden cross” appeared just before the July 2009 MACD crossovers.
Some investors may be skeptical of a potential technical breakout because short interest dropped 31% in just two weeks to 79 million shares as of Jan. 31 settlement, meaning a lot of short-cover buying has already taken place. But current short-interest levels are similar to those seen at the time of the previous positive MACD crossovers, and are still more than double the lowest levels seen during the bull-market years of 2005 and 2006.
The stock was up 0.2% at $14.87 in afternoon trading Thursday, off an intraday low of $14.73. A potential MACD crossover spike would likely propel the stock through key resistance at the $15.30 to $15.40 level, which includes the January high and the 50% retracement level of the decline from the April 2010 high to the November 2010 low.
Other upside levels to watch include the June high of $16.10 and the gap in the charts between the May 14 high of $16.72 and the May 13 low of $16.85.
So instead of Buffett or Paulson, perhaps short-term investors should follow Appaloosa Management’s David Tepper. He made billions buying bank stocks in 2009, called the stock market’s rally since last September, and raised his stake in B. of A. by 12% during the fourth quarter.
I bought BAC at $10.93 and expect the stock to continue up to about $17.50 (current price is $ 14.81) I am also in Citi and i expect it to go to 6.50 in the coming months
Dow looks strong and should continue to climb the wall of worry ,we could see it reach 13500 -14000 and possible see ne all time highs before we see acorrection of 10%-15%