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Bank Of America, Earnings Disappointment, More To Come? - Rating Improved To Hold At Istock

 April 15, 2011 02:18 PM

Bank of America (NYSE: BAC) released the company's first quarter financial results, and the numbers came in well below Wall Street expectations. Net earnings of $0.17 per share were 37 percent below the consensus of $0.27. The bank earned $0.26 per share a year ago and posted a loss of $0.16 in the fourth quarter of 2010. Total revenues for the first quarter were $27.1 billion compared to $32.3 billion a year earlier.

Bank of America seems to be having more trouble than some of its peers climbing out of the bank caused financial crisis and resulting recession. The press release tried to put a positive spin on the quarter but noted the following areas of negative performance: "...higher legacy mortgage-related costs, higher litigation expenses, and lower sales and trading revenue from the record levels reported in the first quarter of 2010."

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Looking at the share price from a technical analysis point of view: One year ago BAC was trading in the $18 range and it dropped steadily to bottom in November at around $11.00. The stock price recovered and crossed the 50-day simple moving average the second week in December at just above $12. The stock price continued to climb, pushing above the 200-day SMA at the start of 2011 at a price of about $14.25. Two weeks later BAC hit its recent peak of $15.25 before declining to oscillate above and below the 200-day SMA. The higher share price trading range allowed the 50-day SMA to cross above the 200-day SMA on February 15.

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BAC has been in a steady decline over the last 2 month, but the share price has remained between the two moving averages, avoiding any indication of a firm move in one direction or the other. Just recently -- in this weeks trading, the share price drop has finally pushed the price firmly below the 200-day SMA. To confirm the stronger downtrend in the price of BAC, the MACD signal lines have also crossed. Right now, moving average and MACD indicators show an accelerating move to the downside for Bank of America. The chart indicators led the bad news from the earnings release by a few days, so the negative earnings report can be viewed as a confirmation of what the charts have been showing.

Bank of America has a serious legal problems with the mortgages originated by the bank plus the loans from the purchase of Countrywide. Mortgage investor claims against the bank are currently at $13 billion. From both a technical and fundamental approach BAC is currently a stock only a short seller could like.

Bank of America rating changed from "F" (Strong Sell) to C (Hold) by iStock automated weekly scans on 04/11/2011



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