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.
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.