[Chart Of The Week] The Expensive Opportunity Cost In Owning Bank of America

JC Parets
December 31, 2015

When calculating risk in a given trade or investment, I find that opportunity cost is often overlooked. Remember, it's not just how much money you can potentially lose on a given position, it's the opportunity to make money elsewhere that you are missing out on while that position remains in your portfolio. This "Opportunity Cost", is the type of risk that we like to refer to as, "A waste of money".  Today I want to point out what waste of both time and money it has been to be in Bank Of America over the past 2 years. But things could be about to change...

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12-31-15 bac

This is a chart of Bank of America trading in a sideways range over the past 2 years. This range is about 3.5 points in amplitude and is the sheer definition of a lack of trend. It is one of America's favorite stocks and people tend to get upset with me when I say anything negative about $BAC on TV or here on the blog. People get very sensitive about this one, not sure why. Maybe it's because these 3 letters, BAC, represent the name Bank "of America", and people want to be all patriotic about it.

Nevertheless, it's just 3 letters, as far as we're concerned, and do not care one bit about being patriotic when it comes to the market. We're just here to make money. There are plenty of other ways to show your appreciation for America. Wasting money in a dead stock is not one of them. In fact, think about how un-American it is to do that.

Looking at this on a relative basis, compared to the S&P500, things actually get worse. What is at least a flat range in Bank Of America stock, actually becomes an underperformer when compared to the rest of the market. Here is $BAC vs $SPY in a clear downtrend over the past couple of years. Some might call this a falling wedge. Either way, it's not an uptrend:

12-31-15 bac vs spy

Moving forward, however, I do see some potential. Patience here has paid of 10-fold. I believe this is still the case and want nothing to do with this, "Waste of time and money", that we call Bank of America. Ultimately, IF, and that's a big IF, prices breakout above the upper end of this range, I'll get interested. IF, prices on a relative basis breakout above the upper of the two downtrending converging trendlines, then I'll definitely get interested on the long side.

This breakout has the potential to be explosive because as they say, "The bigger the base, the higher in space". This 2 year consolidation has been a pain in the neck for anyone involved. But this period of frustration for both the bulls and the bears can be the catalyst to spark a monster move higher. The measured move in $BAC upon a breakout would be about 3.5 points above the upper end of the range. That can take it towards $22.

But let's worry about that when the time comes. Today, as it's been for 2 years, Bank of America is still a waste of time and a waste of money.

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Tags: $BAC $SPY $XLF

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