The well-known American multinational financial services company which is the world’s fourth-largest bank by market capitalization and the fourth largest bank in the United States by total assets, Wells Fargo & Co (NYSE: WFC) seems to be getting ready for a price bump according to the charts.
Bullish Move – Chart Indications
#1 Channel Breakout: As you can see from the daily chart of WFC, the stock was trading within a channel for the past several weeks. This is marked as pink color lines. The stock had typically taken support at the lower rail of the channel multiple times before bouncing back. The stock has currently broken out of the channel, which is a possible bullish sign.
Daily Chart – WFC
#2 Trading Above MAs: The stock is currently trading above its 50-day as well as 200-day SMA, which implies that the bulls are currently in control.
[hana-code-insert name=’adsense-article’ /]#3 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart.
This indicates possible bullishness.
#4 MACD above Signal Line: The MACD (light blue color) is currently above the MACD signal line (orange color) in the daily chart.
This typically indicates a bullish setup.
#5 Bullish ADX: The ADX line is starting to move up from below –DI and +DI lines.
The +DI line is also currently above –DI line. This indicates possible bullishness.
#6 Multiple Bottom Pattern: The weekly chart shows that stock had formed a multiple bottom pattern (marked in purple color). The stock is also trading above its 50-week SMA. All these are possible bullish signs.
Weekly Chart – WFC
#7 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), and ADX has started rising from below both (+DI) and (-DI).
#8 Bullish RSI: RSI is currently above 50 and moving up, indicating possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for WFC is above the high of Friday’s candle. This translates to a price of around $52.
Alternatively, you may also buy the stock if it corrects to the support area of around $49.
TP: Our target prices are $60 and $70 in the next 3-6 months.
SL: To limit risk, place a stop loss below $46.70. Note that the stop loss is on a closing basis.
Our target potential upside is nearly 15% to 43% in the next 3-6 months.
- Entry near $49: For a risk of $2.30, our target rewards are $11.00 and $21.00. This is a 1:5 and 1:9 risk-reward trade.
- Entry near $51: For a risk of $5.30, our target rewards are $8.00 and $18.00. This is a 1:2 and 1:3 risk-reward trade.
In other words, this trade offers almost 2x to 9x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the channel breakout level. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Happy trading!
Tara
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