BAC’s post-earnings drop below its April 2025 trend line fits an Elliott Wave ending diagonal and may be the start of a bigger correction.
Bank of America has had a rough few days. After a hefty regulatory penalty and a third-quarter report that fell short of expectations, the stock fell to its lowest level since May. More importantly from my point of view, it broke below the trend line connected from the April 2025 lows.
When a support line that old gives way, I pay attention. From an Elliott Wave perspective, the picture fits a pattern I respect a lot: an ending diagonal.
Looking at the subdivisions of the whole move from the 2024 lows, I can see the shape of a wedge, and the strong drop below it makes me think that pattern may now be completed. If so, an important top could be in place.
Bank of America (BAC) daily chart: the break below the April 2025 trend line, the possible ending diagonal from the 2024 lows, the $53–$57 resistance area on a rebound and $46 as the next major support.
The earnings backdrop
According to the bank’s own results release, Bank of America earned $6.9 billion, or $0.91 per share, in the third quarter, down from $8.3 billion, or $1.04, a year earlier. That includes a $1.2 billion regulatory settlement charge, worth 17 cents per share. Excluding it, adjusted earnings were $1.08 per share, which, according to Reuters, missed the $1.10 analysts expected. Revenue rose 3% to $30.0 billion and net interest income grew 8%, but investment banking fees fell 11% to $1.8 billion and sales and trading revenue slipped 5% to $5.1 billion, as fixed income trading dropped 17% while equities rose 11%.
The penalty, according to Reuters, relates to the bank’s failure to report more than $5 billion in suspicious activity to the US government. The stock fell about 4.8% on Wednesday to close at $51.39, after trading at its lowest since May during the session. The capital position remains solid, with a CET1 ratio of 10.9% and book value of $39.26 per share. By my own calculation, at around $52 the stock trades at roughly 1.3 times book value and 1.8 times tangible book value, and the latest quarterly dividend of 32 cents works out to a yield of about 2.5%.
What is an ending diagonal?
An ending diagonal is a wedge-shaped pattern that usually shows up in the final wave of a trend. Its waves overlap, and each of the five waves tends to unfold in three smaller waves (3-3-3-3-3), which is why the advance often looks tired and choppy rather than powerful. It tells me momentum is fading. When the wedge breaks, the market often reverses sharply, because the move that built the pattern has run out of steam.That is why the trend line break matters here. It is the first sign that buyers have lost control. What I want to see next is a rebound that fails in the $53–$57 area, where the broken trend line and former support should now act as resistance.
Elliott wave ending diagonal: waves 1-2-3-4-5 move within two converging trend lines and complete wave (5).
What I am watching
The stock closed around $51.40 last week, so it sits just under the $53–$57 resistance area and roughly 10% above the next major support at $46. I think we are still only in the first leg of a higher-degree correction, so after some rallies, even back toward the broken trend line, I expect more weakness as long as BAC trades below the $65.45 high.
Of course, nothing is certain. Rallies can be sharp, especially after a big drop, and a move above $65.45 would invalidate this bearish count. Until then, I am treating bounces as opportunities to watch rather than a reason to turn bullish.
Highlights:
Bank of America broke below the trend line connected from the April 2025 lows, a dangerous signal.
The subdivisions from the 2024 lows suggest an ending diagonal that may now be completed.
A rebound toward the broken trend line and the $53–$57 area could still happen.
$46 is the next major support.
The bearish view remains valid while BAC trades below $65.45.
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Twitter: @GregaHorvatFX
The author may have a position in the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity .
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