Bank of America has seen a sharp decline since the start of this year. The stock price has fallen below a key trendline support. This change became more pronounced after President Trump imposed a 10% cap on credit card interest rates, causing a significant drop from its all-time highs. Looking ahead, we expect further weakness, with possible resistance around $54.50. If the stock hits this level, it may drop to around $50. The stock is facing resistance after rising above the highs of 2006. This, combined with the ending diagonal pattern on the daily chart, suggests that caution is needed.

Ending Diagonal Overview

The ending diagonal is an Elliott Wave pattern that appears at the end of a trend. It shows up in Wave 5 of an impulse or Wave C of an A-B-C correction. This pattern signals trend exhaustion, often leading to a sharp reversal. An ending diagonal has five waves, with Wave 4 overlapping Wave 1, creating a wedge shape. After it completes, prices may sharply reverse, usually retracing the entire pattern. Common relationships include Wave 5 being 61.8% of Wave 3, with retracements often between 61.8% and 78.6%. The sharp reversal in Bank of America early in 2025, following the unexpected cap on credit card interest rates, created a new bearish trend. This policy change triggered a drop from all-time highs, and the price action since then indicates ongoing weakness. This history is important for our current approach. Recent data supports this cautious outlook for the upcoming weeks. Bank of America’s Q4 2025 earnings, reported last week, showed a 12% decrease in net interest income from its consumer credit division. This decline confirms the negative impact of the rate cap. The fundamentals align with the technical pattern, suggesting any rallies may only be temporary.

Bearish Trading Strategies for Bank of America

In this environment, derivative traders should consider bearish positions. One option is to buy put options with strike prices near the $50 target. This could be a straightforward way to profit from further declines. With implied volatility on Bank of America options at around 32%, traders might also explore bear put spreads to reduce entry costs and minimize time decay. The unfilled gap near $54.50 from last year is a crucial resistance area. If the stock rises to this level in the coming weeks, it would present a chance to open new short positions. Selling call credit spreads with a short strike above $55 would also be a good strategy, betting on that resistance holding. We can look back to how financial stocks struggled after the Dodd-Frank Act was introduced in 2010. That period of regulatory pressure limited gains for years, and we may see a similar pattern now. So, it’s wise to stay prepared for ongoing challenges with this stock. Create your live VT Markets account and start trading now.

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