Bank of America has shown a sharp decline since the beginning of the year, with the price breaking through a lower trendline support. This shift intensified following President Trump’s introduction of a 10% cap on credit card loans, leading to a significant price drop from all-time highs.
Future weakness is anticipated, with potential resistance at the gap around 54.50, which could prompt further downside action to the 50 area. The stock is encountering resistance after surpassing the 2006 highs, which, alongside the ending diagonal on the daily chart, suggests caution is warranted.
Ending Diagonal Overview
The ending diagonal is a terminal Elliott Wave pattern occurring at the trend’s end. Found in Wave 5 of an impulse or Wave C of an A–B–C correction, it indicates trend exhaustion, often leading to a sharp reversal.
This pattern consists of five waves, with a required overlap between Wave 4 and Wave 1, forming a wedge shape. Price may reverse sharply post-completion, typically retracing the entire pattern. Common wave relationships include Wave 5 being 61.8% of Wave 3, and retracement often ranging from 61.8% to 78.6% of the whole diagonal.
The sharp reversal we saw in Bank of America during early 2025, following the unexpected cap on credit card interest rates, established a new bearish trend. That policy shock created a breakdown from all-time highs, and the price action since then confirms this underlying weakness. This price history serves as a critical backdrop for our current strategy.
Recent data reinforces this cautious view for the coming weeks. Bank of America’s Q4 2025 earnings, reported just last week, showed net interest income from its consumer credit division falling by 12% year-over-year, directly confirming the negative impact of the rate cap. This fundamental pressure aligns with the technical pattern, suggesting that any rallies are likely to be temporary.
Bearish Trading Strategies For Bank Of America
For derivative traders, this environment favors bearish positions. Buying put options with strike prices near the $50 target could offer a direct way to profit from further declines. Given that implied volatility on Bank of America options remains elevated around 32%, traders might also consider bear put spreads to lower the entry cost and mitigate time decay.
We see the unfilled gap near $54.50 from last year as a key area of resistance. Should the stock rally toward this level in the coming weeks, it would present an opportunity to initiate new short positions. Selling call credit spreads with a short strike above $55 would be a viable strategy to bet that this resistance level will hold.
This situation has historical parallels, as we recall how financial stocks underperformed for an extended period after the implementation of the Dodd-Frank Act in 2010. That period of regulatory pressure capped upside for years, a pattern which could be repeating. Therefore, we should remain prepared for sustained pressure on the stock.
