Stock of the day (2/22/21) – Wells Fargo (WFC)

Market Overview

The entire market was under a lot of pressure last week. The Nasdaq had another sell off Thursday, opening with big losses before recovering slightly. This appears to be a trend over the past few months. Looking at the NASDAQ, we see this is the 5th time since early November that the overall market has had a heavy pullback of a few days.

In the coming days, it will be important to keep any eye on the overall market selloffs or support. This will help establish if the market trend is beginning to face too much resistance and turn downwards on a more long-term path. The overall market bounced off the 20 day moving average Thursday, so lets see how today shakes out.

NASDAQ as of 2/18/2021

Wells Fargo Overview

Wells Fargo is a bank holding company. The company offers personal, small business, and commercial banking. JP Morgan recently upgraded Wells Fargo from a price target of $31.50 to $37. As of the time of writing, the current WFC stock price is $37.83

Formation

Wells Fargo Stock recently formed a shallow cup and handle, and successfully broke out. The buy point of the pattern was $34.85 and therefore the stock is currently 8.5% past its buy point, which is outside the recommended range within 5%. The purpose of this post is to teach what to look for in your stocks so you don’t miss key opportunities.

The major note here is that if Wells Fargo was on your watchlist for pattern breakouts, you could have bought it right on time! Many times there is a gap up between the close of one day to the open of the next When this happens it sometimes isn’t possible to buy right at the breakout point. However, we will see here that the Wells Fargo breakout occurred through the day on February 17th, triggering a buy point that would have been actionable immediately if you were ready for it.

WFC as of 2/21/2021
  1. Wells Fargo originally hit $34.75 on January 14th, 2021 before pulling back on a heavy sell-off day that continued with a downtrend until February 1st.
  2. On February 1st, WFC stock found support and bounced off the 50 day moving average line. The stock continued to gain price steadily, then moved sideways for a few days until February 16th. On February 16th, The price climbed just above the high of $34.75 and ended the day at $34.79. This was not high enough to trigger a buy point yet, because the buy point of a cup and handle should be 10 cents above the high from the beginning of the pattern.
  3. On February 17th, the stock opened the day at $34.34 and climbed through trading hours to close at $36.59. This is important to point out because as stated earlier, the buy point was triggered throughout the trading day. This means if you were paying attention to this stock, you could have bought right at the buy point of $34.85 and be sitting at the previously mentioned 8.5% gain currently.
  4. The volume on the breakout day was 80 million vs. a daily average volume of 46 million. This is a very strong case for a breakout day as it was almost 100% increase volume. The most successful breakouts occur with volume greater than 50% the daily average, and the higher the better.

Strengths

Weaknesses

  • The cup is fairly short in timeframe as well as shallow. More solid cup patterns and longer timeframes will allow for stronger possibilities of breakouts and higher gains.

Conclusion

Wells Fargo is sitting just above the buy zone of this breakout. If I were in this trade, I would probably try to take at least half of my profits at the 10% gain mark since the cup was fairly shallow and short. It had great volume on breakout, but the short length of the cup is cause for conservatism in the trade.

Don’t forget to choose your stocks based on fundamental analysis, then watch the charts for these patterns to develop. Try drawing your own patterns on the charts available to measure appropriate buy zones. Always remember to follow your own buy and sell rules, never fall in love with a stock.

For easy access to the history of our other Stocks of the Day, visit this page.

As always, Stock Tavern is not suggesting you buy or sell this stock, and this analysis should not be taken as financial advice. Always do your research and make your own decisions, we all have different risk profiles and therefore no trade is right for everyone.

Disclosure: Stock Tavern has no current position in BBBY

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