Monday, 19 December 2011

Bank of America breaks the 5$ Maginot line

There was a wide debate going on whether the Bank of America stock price will drop below the 5$ psychological support level. It was deemed as protected by a vast amount of bids and though as the point of no return signalling a market correction. Now it happened folks: BA dropped to 4.95 and it is currently holding that level, which means we are in store for a correction in the US equities, a correction most probably caused and led by the financial sector. This could actually be the market sell-off that Bernanke is waiting for to allow him to announce QE3 in January.

Bank of America losing ground

The stock price has been steadily declining since the beginning of the 2007 financial crisis from a high of nearly $54.00 to what is not $4.97, a level close to the lowest 2008, a mind blowing 90% drop. Let me remind you that if Bank of America was before the financial crisis a too big to fail bank, now it has became a too big not to fail bank, over-leveraged, filled with toxic mortgages and sovereign bonds.  Without an intervention the price will find its way down to 4$. 

And just to make an impression on the scale of this breach, here is the M1 chart. I wish I had market debt to show you the amount of bid orders at 5$ and the open interest for options with 5$ strike. 

S&P bet

As this is a pretty bearish indicator of a impending correction I am adding to the short S&P position at $1204  with a stop loss at $1235 just above the 50 day moving average. 

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