Wells Fargo stock analysis: Is a top in place?

Charts suggest Wells Fargo could correct in the short term.

Red and yellow Wells Fargo logos                                 
Wells Fargo recently paid a $250m fine linked to its loan modification programme – Photo: Shutterstock
                                

Wells Fargo reported third-quarter numbers on 14 October with both revenue and earnings surpassing Wall Street’s expectations. The bank’s revenue of $18.83bn (£13.7m) was marginally ahead of consensus analysts’ estimates of $18.35bn. Similarly, earnings of $1.22 a share, adjusted, beat expectations of 99 cents a share, according to Refinitiv, reported CNBC.

However, disbursement of loans dropped 8% from the previous year as demand from both businesses and consumers reduced because of the massive US government stimulus programmes. The consumer unit’s loans fell by 14% and commercial banking saw a drop of 12% compared to the prior year.

During the quarter, the bank paid a $250m fine for its “unsafe or unsound practices” linked to its loan modification programme. 

The bank’s CEO, Charlie Scharf, said in a statement: “We are a different company today and the operational and cultural changes we’ve made are enabling us to execute with significantly greater discipline than we have in the past.” 

Wells Fargo bought back 114.2 million shares, or $5.3bn, of common stock in the third quarter and boosted the common stock dividend to 20 cents per share from 10 cents in the previous quarter. 

According to Yahoo Finance, the consensus analyst share price target for Wells Fargo is $51.25. Will Wells Fargo’s stock go up and reach its target objective? What do the charts suggest? Read our WFC stock analysis to find out. 

Wells Fargo share-price technical analysis: weekly chart

Wells Fargo share-price technical analysis: weekly chart
Wells Fargo share-price technical analysis: weekly chart

Wells Fargo’s stock price recovered sharply from the October 2020 lows of $20.75 and hit a local high at $51.33 in August. In doing so, the stock broke above the long-term downtrend line, indicating that bears may be losing their grip.

However, the sellers are in no mood to relent as they are trying to pull the price back below the downtrend line. Although bulls defended the level in September, the failure to push the price above $51.33 may have attracted selling from traders.

The 20-week exponential moving average (EMA) is flattening out and the relative strength index (RSI) has been dropping toward the centre, indicating a balance between supply and demand.

A break and close above $51.33 could signal the resumption of the uptrend. The stock could then start its rally toward $66.22. Conversely, a break below the downtrend line could open the doors for a possible drop to the 50-week simple moving average (SMA).

Wells Fargo share-price technical analysis: daily chart

Wells Fargo share-price technical analysis: daily chart
Wells Fargo share-price technical analysis: daily chart

Wells Fargo’s stock price has been forming a bearish head and shoulders (H&S) pattern that will complete on a breakdown and close below the neckline. This negative setup has a pattern target of $33.67.

The 20-day EMA has started to turn down and the RSI is in the negative territory, signaling advantage to bears.

However, the bulls are unlikely to give up easily. They will try to defend the neckline aggressively. If the stock rebounds off the current level or the neckline, the bulls will attempt to drive the price above $48.87.

If they manage to do that, the stock could retest $51.33. A breakout and close above this level will invalidate the bearish setup.

Wells Fargo stock: Buy or sell at these levels?

Wells Fargo’s share price analysis shows a bearish H&S top which will complete on a break and close below the neckline. If that happens, the stock could start a new downtrend. The bulls will have to push the price above $48.87 to reduce the possibility of a strong correction.

The views and opinions expressed in this article are those of the author alone and do not constitute trading advice. Trading and investing involve substantial risks, and you should always do your own research or contact your financial advisor before arriving at a decision. Never invest more than you can afford to lose.

Trade Wells Fargo stock: Wells Fargo shares price

Wells Fargo & Co
Daily change
49.02
Low: 49.02
High: 50.37

Further reading

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