The stock of Bank of America (NYSE: BAC) has appreciated by nearly 10% to $24 in the past two trading sessions. Expectations of a Fed rate hike later this month contributed mainly to the bullishness in the stock. The stock has appreciated over 100% in the past one year. Thus, most of the valuation metrics have changed considerably. Additionally, the bank had to pay $1.9 million to settle a litigation. Thus, considering the arguments below, we have a short-term bearish view of the stock.
Last week, the BoA agreed to pay $1.9 million to settle a lawsuit that blames the financial institution of failing to inform customers that calls were being recorded. The lawsuits were filed by district attorneys in San Diego, Alameda, Ventura, and Los Angeles counties. According to the law of California, people should be informed before recording a conversation. The lawsuit alleged that the bank did not abide by the rule and avoided disclosing call recording to the customer.
According to the settlement, the BoA will pay $1.635 million in civil penalties and $240,000 to cover costs related to the investigation. The BoA has also agreed to pay $327,000 to San Diego County, in addition to $48,000 for costs related to the investigation. In the settlement, the bank did not acknowledge any wrongdoing. However, it has accepted to make necessary changes in policy. Even though, the settlement will not affect the bank’s financial health in any manner, still, the news would keep the investors at bay for a short period of time.
The bank has appreciated considerably in the past one year. Additionally, the dividend yield of about 1% makes it unattractive to investors.
Finally, investment research firm Vetr downgraded the stock to “hold” rating, from the prior “buy” rating, with a target price of $24.20. The stock has already reached the price. In fact, according to a recent filing with the Securities and Exchange Commission, Nationwide Fund Advisors have already sold about 195,908 shares, or 3.3% of their holding in BoA, during the first-quarter. Thus, we can expect more investors to unwind their positions. So, considering the negative news of litigation settlement and downgrade by Vetr, we forecast a short-term downtrend in the stock.
The stock is currently trading near 24, which is a major resistance level. An overbought situation is also indicated by the stochastic oscillator. Thus, a downtrend can be expected soon.
In order to capitalise on the probable decline, we wish to buy a put option from one of our binary brokers. We would like to make sure that the put option is valid for a period of one week. Additionally, we would like to invest when BoA trades near $24 in the NYSE.
Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.