In the past few weeks, there has been an increasing number of questions that concern all equity investors: Will the stock markets soon collapse? The good thing is, as soon as the question passes through the minds of the stock marketers, there are big ones Probability of no crash. Of course, this does not mean that a moderate decline in prices is possible. On the contrary, especially the US stock market would probably do a breather very well. The S & P500 has been in a continuous upward movement since early 2016. In such a situation, some stock marketers like to come up with the idea of taking their price gains with them.
The framework conditions are decisive for a price decline. As soon as the central banks raise key interest rates, the stock markets will fall to their knees. But can politicians and central bankers afford higher interest rates at all? I personally lack the belief that the key ECB interest rate was still around 5% in 2008. Since then, the debt has expanded significantly. High debts and a rising interest rate are a poisonous cocktail. In theory, every German currently has to pay an unreasonable 24400 euros in government debt. It is therefore reasonable to assume that the key interest rates will remain very low for a long period of time.
A look at the US stock market shows that it is stable on the upward trend. As a result, there is also confidence among US stock marketers that future key interest rates will be low.
A look at the structure of the US stock market
With the Advance Decline Line (ADL) the difference between the rising and falling shares is calculated. Basically, every movement of the index should be confirmed by the indicator. If there is no confirmation, this means that the majority of the shares are behaving differently.
The majority of the shares is rising
The upper chart shows the S & P500 index as a representative index for the US stock market. A moving average (GDL100) is entered in each of the figures. The average line should serve as a benchmark. Notice how close the course is to the GDL and compare it to the ADL (see arrows). Ideally, the distance should always be the same.
The greater difference between ADL and the GDL100 proves that the stock market is highly stable. As soon as the S & P500 fell sharply, the majority of shares did not support it. This market behavior is clearly bullish. In other words, the upward trend in the US market continues to show no signs of exhaustion.
Trend analysis of the largest Dow Jones companies (Mighty Five)
Short-term = trend analysis of the past 40 daysMid-term = trend analysis of the past 40 Weeks Long-term = trend analysis of the past 40 monthsTrends Name short-term medium-term long-term ApplelonglonglongGeneral ElectricshortshortflatIBMshortflatflatglonglonsxxonflatfloftglonglonglonflatflatoftlongglonflongflatoftlongglonflongflatglonglonglonflongflatoftlongglonflongflatglonglonglonflongflatoftlongglonflongflatglohnglonglonflatflatoftlongglonflongflatglonglonglonflongflatoftlongglonflongflatglonglonglonflatflatoftlongglonflongflatglohnglonglonflatflatoftlongglonflongflatglonglonglonflat
Table: Dow Jones Mighty
In the table above, the trends from three different time frames are considered. Three of the companies show a pronounced upward trend that should continue in the coming months. Only General Electric would be a short candidate for the next few weeks or months. Three other companies (Apple, J&J and Microsoft) are clear long recommendations. This small test suggests that despite the summer-autumn period, the bulls are still overweight.
Bank of America Microsoft in focus - buy shares?
What do you think by Warren Buffett? He is probably the most famous investor in the world. With astounding sophistication, Buffett makes the most of his options and turns a difficult situation into a win-win situation for Berkshire Hathaway and the Bank of America. His company, Berkshire Hathaway, became Bank of America's largest company owner in 2017.
It is remarkable how hard-nosed he became the largest shareholder and earned billions of dollars in the process. You surely remember the 2007 financial crisis. Because of the general banking crisis, Bank of America was doing pretty badly and was struggling to survive. Buffett then made a deal with the bank in 2011. He bought the bank's preferred shares for $ 5 billion and received a fixed rate of 6% in return. As part of the deal, he also had the right to exchange the preference shares for voting ordinary shares within a maximum period of 10 years.
Now we have 2017 and Bank of America is doing better economically. Buffett took this as an opportunity to implement the share swap in June. In one fell swoop, Buffett made a huge profit. His $ 5 billion stake has now jumped to $ 11.5 billion in book profits. Buffett would probably not have exchanged the shares if the bank was on shaky feet. On the contrary, the development opportunities are so good that the shares are now in his long-term portfolio. He is now the bank's largest shareholder.
The cash cow lives
Bank of America has an equity ratio of around 12%. The rate is significantly higher than the legal minimum of 4.5%. The board of the bank has built up a lot of "surplus" money for security reasons. In press conferences, CEO Moyhihan has repeatedly announced that the available capital should be used in two ways. The aim is on the one hand to increase the annual dividend payment and on the other hand to buy back shares. The analysts expect an increase in the dividend from the current 1.3% to 1.8%. That would also be the industry average.
In future, the share buyback program in the billions will be an additional support for the share price. Because Bank of America financed itself through the issuance of new shares in the financial crisis, the old shareholders arithmetically have less ownership of the company. The bank wants to reduce this disadvantage with its share buyback program. It could even be that both Warren Buffet and the other major shareholders will press for the buyback program to be larger than planned. The share price should therefore be able to expand its good performance in the long term.
Bank of America (BoA)BoA200142015201620172018 sales figures977739775392085837008932892626 Dollar
Figures for 2017 and 2018 are estimates
The key interest rate is very important for a bank's profitability. Lending is only worthwhile for a bank if the risk is covered by a correspondingly high interest rate. The Fed has already overcome the low of the US key interest rates. Some Fed panel members are concerned that the US economy may overheat, so the expectations of stockbrokers are clear. Over a period of many years, the base rate should rise continuously slightly. This brings good economic conditions for all US banks and thus also for Bank of America.
Why to buy Bank of America stock
The technical situation of Bank of America shares
The shares are in a stable state uptrend. The middle line of the trend fork (median line) shows us that the prices rose a little too much in March. In a strong upward trend, that's even the rule. It is a result of the great power of the bulls. It should be mentioned here that the courses typically oscillate around the median line. This means that if a price runs too far ahead, the movement will correct itself later.
The price trend after the March top can be seen as a slight consolidation. There is no discernible sales pressure. Seasonally, the share tends to hit an annual low in mid-October. And then it changes in an increasing cycle. If you want to be on the safe side, October is a good time to buy. However, because consolidation has already progressed, weaker prices could even turn out this year, with the RSI indicator shown at the bottom of the chart. The indicator swings slightly around its centerline at 50. This is usually a sure sign of price relaxation. So that prices can rise in the future, there is no longer any need for consolidation. The share is rested and has potential.
However, it is not only the share itself that is responsible for the rise in a share price. The overall market is of great importance. This is particularly the case with bank stocks, because the value of all bank stocks grows or shrinks with economic cycles. If unexpected negative influences affect the stock exchanges, then all banks could give in again. However, I would like to emphasize that I do not think so. The past few months have shown that the stock exchanges are exceptionally stable. There was a lot of negative news and no price drop was permanent.
Bank of America stock: WKN: 858388 or US symbol BAC
Price target: $ 30
Stopover: $ 26.60
Stop Loss: $ 14.80
If you want to benefit from the short-term stock recommendation, you can buy the stock directly or work with derivatives. Note that derivatives include leverage and therefore increase the profit and loss potential. In extreme cases, a total loss is even possible.
Stop loss: The stop loss is initially set as an initial stop and has the function of a maximum Loss limitation.
Price target: The price target is the exit point for the forecast market movement.
Interim target: When the intermediate target is reached, the position is in profit. At this point we take a partial profit and we sell 50% of our position. At the same time, the stop loss is adjusted to the personal entry price. This enables us to close our position without loss, even if the market later turns against us.