Wells Fargo & Co (NYSE:WFC) has been mired in its ginned-up-accounts scandal for many months now, but a broader banking tailwind has me considering WFC stock as a potential breakout candidate.
Banking stocks received a little boost Wednesday, May 3, on the back of a moderately hawkish statement from the Federal Reserve following the Federal Open Market Committee meeting. We also saw the U.S. dollar and interest rates bump a little higher on the day.
All of this was a fairly classic reaction to the type of statement we received, which did not back off its tone despite a little economic weakness of late.
On FOMC days — or other major economic data days such as jobs reports — I always keep a particularly close eye on interest-rate-sensitive stocks and sectors, in particular the financial sector and banking stocks. While I generally watch a broader basket of financial stocks such as the Financial Select Sector SPDR Fund (NYSEARCA:XLF), I do also have some go-to stocks in the space — one of them being Wells Fargo.
WFC stock behaves well through the lens of chart analysis, and doesn’t offer many erratic moves while still offering enough volatility to make it worth playing.
This makes Wells Fargo a good “swing trading” stock.
When I last mused about Wells Fargo stock on March 29, I pointed to the stock’s constructive bigger picture, particularly given the marginally rising interest rates. In specific, I offered that a trade to the upside against the $54 level (stop-loss) could make sense toward $58. As it goes in trading, not all trades work out, and this trade stopped out at $54 a few days later.
Importantly, however, we had well-defined risk in the trade. As such, a real meaningful loss was averted by having a clear trading plan.
As I often say to my clubhouse members: Plan the trade, and trade the plan.
Revisiting the multiyear weekly chart reveals that despite a deeper drop than I had anticipated in March and April, WFC shares largely are constructively positioned for another move higher.
As a result of the further weakness in the first half of April, WFC stock dropped into a major confluence support area made up of the 50-, 100- and 200-week simple moving averages. From a Fibonacci retracement perspective, this area around the $50-$51 area also represented a 50% retracement of the entire rally from the September 2016 lows up into the March 2017 highs.
On the daily chart, we see that the 200-day moving average (red) also coincided with the aforementioned confluence support area on the weekly chart.
We also see that the initial bounce off this area was rather quick.
Over the past seven trading days or so, Wells Fargo stock has managed to consolidate in what might turn out to be a bullish flag formation. As the name indicates, this would have bullish implications.
Right now, I’m eyeing a purchase of WFC stock upon a break and hold above the $55 area on a daily closing basis. I would use the $58 area as a next upside target. Any bearish reversal from there that forces the stock to close back below $54 would be a stop-loss signal.
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