It’s been an under-performing asset. And now it could be time to completely write-off Wells Fargo (NYSE:WFC). Let’s take a look at what’s happening off and on the price chart of Wells Fargo stock and a strategy to profit while other investors unwilling to flee the scene get robbed further. Let me explain.
The doors to Wells Fargo are open for business. But shares of the tarnished brand with its iconic, old-fashioned stagecoach wagons ain’t what they used to be. (The next time that The Music Man gets staged, the actors will need to sing a different tune.)
Wells Fargo is off 54% in 2020. That’s painful of course. But in light of the broader market’s own loss of just 3% and massive gains in excess of 43% since the March novel coronavirus bottom, it stings even more. That’s not the worst of it either.
WFC stock has been a demonstrable laggard compared to peers Bank of America (NYSE:BAC), Citigroup (NYSE:C), JPMorgan (NYSE:JPM) and others. But the overly bearish behavior in shares hasn’t been without just cause.
To begin with, consider that Wells Fargo has more than 9,000 branch locations. In today’s Covid-constrained, socially distanced environment, that brick-and-mortar presence is more a liability than an asset. Thursday’s report that the company is preparing to cut thousands of jobs, which could total more than 10,000 over the next couple years, in part, attests to the banker’s risk.
To be fair, part of the massive reduction in its workforce aimed at radically cutting costs is also tied to growing loan loss provisions amid a still-unfolding economic downturn. So, Wells Fargo is a victim twice over, right? Not so quick.
Following 2016’s fraudulent hijacking of retail accounts and now a probe of possible hanky-panky in Wells Fargo’s inappropriate handling of the Paycheck Protection Program (PPP) loans for coronavirus relief, it may be time to simply write-off an under-performing investment, or better yet, profit from it.
Wells Fargo Stock Monthly Price Chart
Source: Charts by TradingView
Despite the bearish indictment above, the provided monthly view of Wells Fargo stock does make a presentable case for a stock whose weakness has put shares into potentially a buyable, oversold position.
In defense of bullish investors, Wells Fargo’s price action has been outside or riding the lower Bollinger Band for a fifth straight month. Also, stochastics are at their lowest levels since the 2008-2009 financial crisis. And lastly, WFC’s has also seen fairly significant bottoming volume and a hammer bottoming candlestick.
It sounds good, right? And it is, but the interpretation is those supports won’t be enough to back up shares going forward.
The concern rests with the other remaining pieces within Wells Fargo’s technical picture. A longstanding uptrend line was decisively broken this year. Further, May’s “late” bottom realistically only had a chance to form due to the broader market’s own historic rally already in progress. That’s not all though.
There’s also a problematic broken 62% Fibonacci support tied to Well Fargo stock’s 2008 bottom. And most recently, a confirmed bearish shooting star pattern immediately countered May’s good fortune. Net, net the problems facing Wells Fargo look more convincing and hint at potentially unfinished business for bears.
Possible Trades on Bleaker Outlook
For investors agreeable with our bleaker outlook for Wells Fargo stock and shares fetching $24.05, I’d recommend purchasing the October $22.50 put for $1.90.
Priced for roughly 3.5% stock risk, the benefits of owning this long contract versus shorting shares is attractive. This particular put will require Wells Fargo to effectively fail the May low in order for intrinsic value to really begin building. In no uncertain terms it is an opportunity cost.
Bottom-line though, with more than three months of contract life and decay not an issue until the seasonally challenged months of September and October come into play — bulls could already be sweating the dog days of summer in Wells Fargo.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.