There was some buying yesterday after our 1pm update as the bulls battled back from early losses to make it a worthwhile day. There weren’t any major catalysts behind the advance but one report showed gas consumption is still on the rise which means consumers have worked in higher prices into their budgets. How long remains to be seen because oil moved up to $105.75 yesterday, its highest level since September 2008.
The Dow was up 67 points, or 0.56%, and finished at 12,087. The index traded to a high of 12,116 after touching a low of 11,972 shortly after the open. Resistance at 12,200 is ahead but a break above these levels could get us talking about our 12,500 target again.
The Nasdaq jumped 14 points, or 0.54%, and closed at 2,698. The index finally broke 2,700 intraday and kissed 2,704. Tech has looked weak with some of the bigger names already lowering guidance for the upcoming earnings season but yesterday’s action was encouraging.
The S&P 500 flirted with 1,300 again but closed just below this level by adding 4 points to settle at 1,297.
We talked a little about the Financial stocks yesterday and it’s the one sector that we want to trust, know is going to rebound, but when? Despite the fact that many of Banking stocks are ready to resume their dividend payouts or raise their dividend altogether, it seems they have to ask the Fed’s permission to do so.
Bank of America (BAC, $13.65, down $0.23) fell nearly 2% and traded down to $13.37 after the Federal Reserve rejected its plan to raise their dividend. The boys on the hill are allowing several major banks to increase their dividends after passing stress tests but BofA wasn’t one of them. The company said it expects to submit another request to increase its dividend this year so stay tuned.
Shares of Bank of America have been stuck in the $13-$15 range since the beginning of the year and are at the bottom. While there is still risk down to $10 on a market sell-off, shares will rebound eventually depending on your time horizon.
This situation reminds us of 2009 when the stock was at $5 and we suggested buying calls to take advantage of a strong rebound. Some of our recommendations returned incredible gains (567% and 433%) as Bank of America rebounded strongly and traded back above $10. (Check out our 2009 track record to see all of our results).
While it is hard to predict a bottom for a stock, shares of BofA are looking like a bargain. By no means do we think shares will double over the next month and they could trade even lower from current levels. What we do believe is that shares will trade $20 (6-12 months) at some point if they can report solid numbers in their upcoming quarter and afterwards. However, we are still on the fence with recommending an option trade on it. There are other names we like better and look more attractive based on the prospect of dividend increases.
We have been following a few of them and we have added some new candidates to our Watch List. Although we remain stuck in a trading range there may be some opportunities for a quick trade if the market can make a push back to its mid-February highs.
Dow futures are up 61 points to 12,081, S&P 500 futures are higher by 7 points to 1,299, Nasdaq futures are showing a 20 point pop to 2,284.]]>