BAC...an opportunity

There are a number of bullish technical developments in BAC that have been occurring throughout the course of 2012. The numbers below correspond to the numbers on the chart.

1) BAC has been in a bear trend for a number of years. It is seen more clearly from the action over the past 2.5years or so. Using the most recent primary peak after the 2009 low, seen here as early 2010, and connecting the highs we can see that the stock crossed above this bearish trendline recently in early September.

2) Since bottoming in December 2011 the stock has been in an intermediate term bullish phase. A series of higher lows with constructive volume and moving average support has lead to improving price within an ascending triangle. This ascending triangle is highlighted by the green up-sloping line and the red horizontal line. Ascending triangles are bullish, but a break below can be violent - more on that later.

3) This line represents the target zone once a breakout over $10 occurs. This area represents not only a measured move from said breakout, but also the support/failure level from April 2011 when the stocks tumble started to accelerate.

Conclusion:

Depending on your investment/trading style, there are 2 ways to approach this...

1) The high probability trade, and text book way to play an breakout from an ascending triangle, is to buy a high volume close over resistance - in the case of BAC that is $10.

2) The other way to play a possible breakout is to buy on light volume weakness into areas of support.  First support is the 50day ma currently near $9.33 followed by $9. If the broad market happens to fall hard and take BAC with it, much stronger support exists near the 200day sma currently near $8.37 followed by the ultimate line in the sand for the ascending triangle, the ascending green bullish trendline which is currently near $8.

The caveat is a break below the ascending bullish trendline. A high volume close below can lead to a violent move lower as all those longs from inside the triangle have to manage their risk which puts pressure on price. If that happens, the bullish trade/breakout scenario as outlined above is off.

Ultimately, a high volume close over $10 is likely to lead to a measured move rally up into the low $13 area which represents an approximate 30% gain. If buying into areas of support and THEN the breakout occurs, returns would obviously  be much greater.