Bank stocks are sleeping through one of the best bull markets we’ve ever seen. Their utter inability to participate in the profit-fest has to be vexing shareholders. While the tech sector is partying like its 1999, banks like Wells Fargo (NYSE:WFC) have been mired in the mud. And I’m sad to report I see nothing in the WFC stock chart that suggests there’s any hope on the horizon.
Wells Fargo is in the unenviable position of being one of the weakest stocks in an already weak sector. It’s like the worst house in a bad neighborhood.
As such, it’s going to take a lot more than a new coat of paint to attract buyers.
To build the bearish, or at least unbullish, case for steering clear of this widowmaker, today we’re engaging in some good old-fashioned, top-down analysis.
Financials Remain Uninspiring
Momentum fled financials in early-June, and they’ve been struggling ever since. The Financial Sector Select SPDR Fund ETF (NYSEARCA:XLF) is still down 7.7% from its June high. Meanwhile, the S&P 500 has been printing new records. And I don’t even have the heart to bring up the Nasdaq’s outperformance. XLF looks disgusting by comparison.
The 200-day moving average has hung over the financial sector since March’s breakdown. Like a wet blanket, it has dampened the mood while denying every single rally attempt. The current test could be telling, though. The past two trading sessions are probing the underside of this long-term smoothing mechanism.
Perhaps this attempt will succeed where its predecessors failed. If it does, we could finally see the light at the end of the tunnel for financials’ relative weakness.
I’ll believe it when I see it. For now, banks remain a long shot, and momentum elsewhere demands our attention.
WFC Stock Chart
We’re starting with a five-year weekly chart for a sense of just how dramatic the downfall has been. The touch of $66 in 2018 marked Wells Fargo’s record high. Since then, we’ve seen nothing but drama and downside.
Though prices have stabilized in recent months, at $25, we’re still 62% off the peak. This two-and-a-half-year dismantling has taken place, mind you, while the rest of the market has been ascending to heaven.
Bulls’ hope lies in the slowing momentum that has curtailed WFC stock’s descent. Support has been found in the low $20s, and so far, prices have held above it. But while stabilizing is good, it still isn’t rising. And that, ultimately, is what will bring buyers back. We need to power through resistance zones and finally turn the weekly trend higher. Until that happens, I view WFC as the ultimate dead-money stock.
Earnings is coming around the corner on Oct. 14, but I can’t imagine it being a hugely positive catalyst.
The daily chart reveals which horizontal ceilings need to be breached before turning more optimistic. The first band of resistance is $26 to $27. Climbing above it could clear the way for a run to the falling 200-day moving average near $32. Speculating beyond that is too far off. Our time is better spent determining how to profit from the first breakout.
Wait for Resistance to Fail
The past three earnings reports aren’t encouraging. After each, the stock was either neutral or bearish. The last thing I want to do is swing a long position into next week’s event. Instead, I’m sitting back and waiting for WFC and its sector to prove they have the muster to start trending higher.
Set an alert around $26.50. If we can take that out, then swing away on bullish trades. Until then, I’m steering my cash into more deserving stocks elsewhere.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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