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.


See larger image

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.

Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.