Welcome to Thanksgiving Week. While many market participants will be taking some time off this week with a focus on time with family and friends, prudent investors are also aware of the historically bullish tendency for stocks in this week.
With a December rate hike still looking very possible I am keeping a close eye on financial stocks that could further benefit from a rate hike — in particular, banks such as Wells Fargo & Co (NYSE:WFC).
For WFC stock specifically, the near-term picture also looks good. Today, we’ll look at a nice trade on Wells Fargo shares that active investors can take advantage of.
Respecting and trading with seasonal patterns is an important part of generating alpha for many prudent active investors and traders. As such, it is noteworthy that the holiday-shortened trading week of Thanksgiving has one of the highest probabilities of being an up-week for U.S. stocks.
If we couple this with a structural backdrop that favors banking stocks for now, coupled with a solid picture on the charts, we have a high-probability trade on WFC stock that we can sink our teeth into.
WFC Stock Charts
Speaking of the charts, note that in the bigger picture and through a multiyear lens, Wells Fargo stock — after a steep rally off the late-August lows — has now arrived at the black 2011 reference line. This line acted as support until August and has since been resistance.
The price action of WFC stock from this summer, marked in the blue box, was where the stock ran out of steam. However, if Wells Fargo can get back into this zone, then we’ll have a confirmation of WFC (through a multimonth lens).
While the longer-term chart still needs some time to repair itself and make up its mind about the path of leas resistance, if we look at the closer-up daily chart, we can see a defined upside target.
In early November, Wells Fargo stock broke back above its blue 100-day moving average again for the first time since August and has been consolidating above there since. Last week, WFC again attacked its early November highs, and while it could not succeed, a break higher does look likely.
Right above Friday’s highs looms a still unfilled down-gap from Aug. 20, which now could now act as a magnet and thus the next near-term upside target.
Active investors could look to buy WFC stock around $56 for a first upside target at $57 and change using a trailing stop. Any sharp bearish reversal from here would call off the trade until the next bullish reversal again rears its head.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
