Chart of the Day: Bank of America Battles on Two Fronts

Banks and financials are wrestling with two major issues. First, is whether the economy is slowing down too quickly, which could kneecap their lending businesses. Second, is whether the Fed is about to embark on a rate-cut journey that will eliminate the very rich and profitable net interest income (NII), which is derived from the differential of interest earned and interest paid. Of course, it is more complicated than this, but the gist of a lower Fed Funds rate has the effect of squeezing the margins. This is a major concern for investors when it comes to earnings.

Bank of America BAC is a huge beneficiary of both a strong economy and a wide spread in yields (where NII comes from). The company has enjoyed robust growth for the past several years and the stock this summer reached a new 52-week high in July, but has since shown signs of institutional selling. That is what we call distribution, where big money managers continuously sell a stock out of their portfolio. One such manager is Warren Buffett, who's Berkshire Hathaway BRK.B has been selling the stock for weeks, another chunk was distributed recently.

Now, whatever reason for the selling is inside Mr. Buffett and his lieutenants. But the chart is telling us the stock is probably going to be range-bound for some time. The Moving Average Convergence Divergence indicator, in the second pane has just rolled over for a sell signal. The momentum (stochastics) in the fourth pane, has also rolled over. Money flow, meanwhile, as seen in the fifth pane, is flat here, but trending down.

The 200-day moving average comes in just above $36, which might be a nice bounce level. The chop indicator, in pane three, is rising, which means the stock is going to have some choppy moves in the coming weeks.

We rate Bank of America a two in TheStreet Pro Portfolio, or stockpile on pullbacks.

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TheStreet Pro Portfolio is long BAC.