Last week Wells Fargo & Co (NYSE:WFC) shares fell about 6.50% because of a general risk-off feel for stocks, rising bond prices and — possibly — the company’s earnings report. As a result of this sell-off, WFC stock has arrived at a major technical area of confluence support where odds are good for a long-term try in the stock regardless of time frame.
On April 13, Wells Fargo reported flat earnings and drop in top line earnings on a year-over-year basis. The company continues to struggle with its history of shady sales practices from years past, which arguably may have been keeping one or the other institutional investor on the sidelines in WFC stock.
My base case for the large-cap U.S. bank remains that through a multi-month/quarter lens, it should see another significant leg higher in terms of its stock prices despite the difficult start to the new year.
Full disclosure: I do not currently have any positions in the banks after having traded them a little both ways. But I am looking for a next wash-out signal so as to leg back into names like Wells Fargo stock.
WFC Stock Charts
On the multiyear weekly chart we see that last November, following the US election results, WFC stock broke out of what I will label a large bull flag pattern as represented by the two black parallels.
This rally continued into February where Wells Fargo stock re-tested its 2015 highs. The current and thus far 15% “correction” in WFC stock has now brought it back to a notable confluence area of support. This area is made up of its 50-, 100- and 200-week simple moving averages. While a bullish reversal has yet to occur, this is an important area for Wells Fargo stock and thus for active and passive investors alike to pay attention to.
On the daily chart, we see that last week’s drop in WFC stock was an acceleration of the corrective phase, thus from a momentum perspective, contrarians may look at this as the beginning of an exhaustion selling phase that would soon morph into a better buying opportunity.
Here we also see that as a result of last week’s drop, Wells Fargo stock is now revisiting a technical confluence area of support made up of a previous line of resistance as well as its 200-day moving average. Upon a bullish reversal, this could setup an opportunity to buy WFC stock.
Option players looking to take a stab at Wells Fargo stock could already consider selling out of the money put spreads, such as a June 50-48 put spread.
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