Besides the upward or downward momentum in the broad market, certain catalysts may influence the price action in an issue. On some occasions, there can be two distinct positive catalysts on the company with no corresponding rise in an issue’s share price.
This scenario applies to Bank Of America (NYSE:BAC), which is the PreMarket Prep Stock of the Day.
Catalyst No. 1: Before the open Monday, Morgan Stanley analyst Betsy Graseck upgraded Bank of America from Underweight to Equal-Weight and lowered the price target from $51 to $49.
The actual rating change is certainly a positive, but the lowering of the price target makes the call somewhat less appealing. Investors must also consider the issue already traded at $49 earlier in the year and will have an oversupply issue to contend with on the next rally.
Catalyst No. 2: On Friday evening, CNBC's Jim Cramer said Bank of America is one of the companies that is "not expensive with very good management that I want to own."
It should be noted that both catalysts were revealed when the issue was trading higher, in sympathy with the broad market, and was attempting clear Friday’s high ($44.26). In fact, during Cramer’s comments, the issue actually traded one penny shy of Friday’s high.
What Happened? Other factors can play a role in the price action of issues in the banking sector. One important factor is the movement in the iShares20+ Yr Treasury Bond ETF (NASDAQ:TLT), which mounted a bid in the premarket session.
Typically banks and other financial institutions move in the opposite direction of the TLT, since its rise in price implies lower interest rates, which are not good for banks.
BAC Price Action: While Cramer's statements can instigate a strong move either up or down in big or small-cap stocks, Monday was not an example of that. Any buyer who purchased the issue solely off Cramer pump to the Morgan Stanley upgrade barely even had a chance to break even and sell stock in the $44 handle.
Instead, the issue opened a few pennies lower, had a 2-cent bounce to $43.75, and collapsed.
It easily breached Friday’s low ($43.33) and was trading down 1.31% at $43.16 Monday afternoon.
Photo by Brian Katt via Wikimedia.
