What the Money Flow Index Says About Bank of America

Let’s take a look at Bank of America’s (NYSE: BAC) stock price over the last year…

BAC dropped from $15 to $5 in 2011. That’s a significant 67% drop.

During that time the Money Flow Index (MFI) was reading very low values. This confirmed what the stock’s price suggested: there were no buyers.

By the end of 2011, BAC found support (read: buyers) at $5. This is a key price because many institutional portfolios can’t hold stock worth less than $5.

 

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After bouncing off $5 twice, the Money Flow Index showed investors putting money back into BAC. Then the MFI hit the upper threshold of 80 for the first time in over a year. This new surge in buying interest kick-started the rally that took BAC from $5 to $10.

But $10 was a zone of resistance – the 50% Fibonacci retracement level of the $15-to-$5 downtrend. Just as BAC was hitting resistance at $10, the Money Flow Index was popping over 80 again. This time, the MFI was suggesting exhaustion… buyers had run out of steam.

With the buyers taking a break, BAC has pulled back to $8, losing 20% in just a few weeks.

BAC seems to have a floor at $5 and a ceiling at $10. Watch for BAC to trade in this range as the market fully digests the quality of the bank’s books.

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Categories: Economy

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.