Bank companies tend to be less volatile than most of the growth stocks we have talked about so far. BMO stock also boasts a dividend of over 4%, payable quarterly. This means even if you are to pick up a stock like BMO and hold it through any future patterns, you will at least also be making a passive 4% return on the dividend alone.
Formation – Weekly
BMO is currently on the tail end of a handle in a cup and handle pattern. It has been developed over a very long time, approximately 13 months at this point.
The stock price hit a high of $109 in September 2018 before almost forming a double bottom pattern between that date and January 2020. When COVID news began hitting the world around February 2020 and the markets plunged, BMO was also hit.
We see that BMO works its way down the left side of the cup and handle very quickly on the worldwide market pressure. The BMO stock price then inches its way back up slowly, before bursting up faster in November 2020 to reach closer to the top of the cup.
The stock trades mostly sideways while it forms a handle around the $95-$100 range. Seeing this chart and believing that BMO is a strong company with a good dividend payout as well, I personally entered into a long position on February 22, 2021. BMO’s earnings call was due to come out the next day, and I was banking on good news.
It turns out that the earnings call did bring good news and BMO beat their profit estimates, and the stock climbed further upwards in the past two days. Volume has been a bit lackluster on the trading days, but we also know from our previous stock of the day posts that the market is under a lot of pressure right now.
Formation – Daily
The lack of volume is indeed a weak point in the pattern, but looking at the daily chart you can spot that most of the largest volume days as of late are green days, so that should be noted as well.
We can see that the BMO stock price has had consistent days in the green on its way up and out of this handle. It should be observed that on the daily chart we again see fairly average trading volumes, not enough to trigger a high volume breakout yet. This stock can be monitored for potential big volume days that may make or break the buy point.
The buy point in the pattern should probably be for BMO to close above the $109 high we saw previously. Although this is not the high of the cup and handle, it is a key resistance line we saw BMO fail to pass in the past.
As the market continues to face uncertainty, stocks will remain volatile and risky. Take caution in the market currently and make sure you stick to your risk profile.
As always, Stock Tavern is not suggesting you buy or sell this stock, and this analysis should not be taken as financial advice. Always do your research and make your own decisions, we all have different risk profiles and therefore no trade is right for everyone.
Disclosure: I am currently long on BMO