The second-quarter earnings season officially kicked off on Monday after the close of trading with Alcoa Inc’s (NYSE:AA) report, and later this week, we get to disseminate earnings results from Wells Fargo & Co (NYSE:WFC).
Banking stocks continue to be a concern for many traders and investors, as neither economic growth nor the structure of the yield curve gives much hope to an improving environment for these stocks. So let’s take a look at the charts of WFC stock and map out some reference points above/below which we may see next trades set up.
As I discuss during each and every earnings season, over the nearly 20 years in this business I have learned that from a trading perspective, it does not pay to gamble on a specific post-earnings outcome for any given stock. While individual opportunities may arise from time to time where option traders have an edge to bet on certain outcome after earnings, on the whole, I don’t think the average retail trader and investor should actively engage in the potential for up and down gaps after earnings.
I have found that much higher-probability trades, and thus better ones, tend to emerge after earnings reports are out for any given stock.
WFC Stock Charts
With that in mind, looking at the multiyear weekly chart of WFC stock, we see that after a steep run off the 2011 reaction lows, shares began to top out in August 2015. Ever since then, Wells Fargo has traded with a heavy tone, marking its chart with a series of lower highs.
We also note that last September, WFC broke below its 2011 uptrending channel (black parallels), which last November was successfully retested as resistance. A next down leg then took place in January, and while the stock also bounced with the broader market in the springtime, another lower high marked the chart in April and May.
Through a multi-month lens, WFC has very well-defined support in the mid-$40s. Any next meaningful bearish reversal could break the stock below there through a multi-week/month lens, which (if and when) would also push the stock below its red 200 week simple moving average for the first time in years.
On the daily chart, we see this double-bottom from February and June somewhat better, and I marked this support area with the two blue bubbles. The series of lower highs remains well intact, though, which means the intermediate-term trend for WFC stock remains pointed lower.
My game plan for after earnings on Friday looks as follows:
- Upon any up gap and rally on Friday (i.e. into strength), I will either short WFC stock or buy put spreads.
- Likewise, any meaningful selloff after earnings would also confirm another lower high, and I would also look to initiate short positions with a first price target in the low to mid-$40s.
- Should the stock remain fairly unchanged Friday following the earnings report, I would likely wait for further strength or weakness to re-initiate short positions.
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