Shares of Wells Fargo & Co (NYSE:WFC) rallied 2.8% on Wednesday among a broader rally in the banking sector, and to much fanfare. However, the jury still is out on whether Wells Fargo stock has put in a more meaningful bottom.
I see a well-defined line in the sand against which you could trade WFC stock on the long side.
Wells Fargo CEO John Stumpf has now testified before the Senate Banking Committee twice about his company’s opening of unauthorized accounts and credit cards for its clients. These hearings included some harsh words, and one senator even brought up a WFC breakup. The story likely is far from over, but one has to wonder whether the selling spree in Wells Fargo stock has flushed out most of the “weak” shareholder hands.
Given these headlines, and given the price action in Wells Fargo stock (a sharp selloff since early September), I think the proverbial baby was tossed out with the bathwater.
Wells Fargo Stock Charts
To get some perspective, let’s first look at WFC’s multiyear weekly chart.
Here, we see that despite a downtrend in Wells Fargo stock since summer 2015, shares largely remain in a two-and-a-half-year consolidation pattern. While WFC has been on a slippery slope in 2016, momentum (represented by the MACD indicator at the bottom of the chart) has put in a series of higher lows. That alone isn’t enough to make a bull case, but it is worth noting from a big-picture perspective.
On the daily chart, we see that last week, Wells Fargo finally broke below well-defined horizontal support (black horizontal) around the $45 area, which had held since February. This break below support likely washed out a few more weak hands.
Considering Wednesday’s snap-back rally, one could make the case that WFC’s marginal break below former support was necessary. That now, WFC has a better near- to intermediate-term low from which it can rally.
Sometimes it takes multiple tries for a stock to find a better tradeable bottom. But this week’s low in Wells Fargo stock around $43.50 could offer a well defined trade to the upside toward $47.
Use $43.50 as a last resort stop-loss.
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