Wells Fargo (WFC) - Get Report gapped higher on Sept. 27 on the news that Charles Scharf from Bank of New York Mellon BNY will join the "too big to fail" bank as CEO on Oct. 21. The daily chart shows that the stock will likely confirm a "golden cross" this week when the 50-day simple moving average trends above the 200-day simple moving average. A golden cross indicates the potential for a major rally ahead. My call is to buy the stock down to its semiannual pivot at $47.99.
The banking giant closed last week at $50.71, up 10% year to date and up 17.9% from its Dec. 26 low of $43.02. The stock set its 2019 high of $52.42 on March 19 and is just 3.3% below this level. Longer term, the stock is consolidating a bear market decline of 35% from its all-time intraday high of $66.31 set on Feb. 2, 2018 to the Dec. 26 low.
Back on April 11, I made a premature call to "Buy Wells Fargo as a Turnaround From a Bear Market" when my buy level was the close that day at $47.74. This level is just below the second half pivot at $47.99. Today's call reiterates the turnaround call to add to this position. The price target remains the annual risky level at $63.29. In this story, I asked one question. Who will be the next Wells Fargo CEO? We now know!
Wells Fargo is a cheap stock with a P/E ratio of 10.10, with a dividend yield of 4.17%, according to Macrotrends. The stock is now the third largest of the four "too big to fail" money center banks. Data from the Federal Deposit Insurance Corporation show that this banking giant had $1.722 trillion in total assets at the end of the second quarter of 2019, up from $1.709 trillion at the end of 2018. This is a clear sign of a turnaround.
The Daily Chart for Wells Fargo
Courtesy of Refinitiv XENITH
The daily chart for Wells Fargo shows that the stock is poised for a "golden cross," which will be confirmed when the 50-day simple moving average now at $47.17 rises above the 200-day simple moving average at $47.56 to indicate that higher prices lie ahead. The 2018 close at $46.08 was an important input to my proprietary analytics and the annual risky level at $63.29 is the upside potential by year end. This would be shy of the all-time intraday high of $66.31 set on Jan. 29, 2018. The horizontal line is the semiannual pivot for the second half of 2019 at $47.99. This level has been a magnet between July 1 and Sept. 11.
The Weekly Chart for Wells Fargo
Courtesy of Refinitiv XENITH
The weekly chart for Wells Fargo is positive with the stock above its five-week modified moving average of $48.46. The stock is also below its 200-week simple moving average or "reversion to the mean" at $52.02,which was last tested during the week of Dec. 7, 2018. The 12x3x3 weekly slow stochastic reading is projected to rise to 75.44 this week up from 69.07 on Sept. 27. A pop above the "reversion to the mean" would solidify the turnaround story.
Trading Strategy: Buy the stock down to its semiannual pivot at $47.99 and its 200-day simple moving average at $47.56. Traders can reduce holdings on strength to its "reversion to the mean" at $52.02. Longer term investors should hold a core long position until the stock trades up to its annual risky level at $63.29.
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How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play.
The weekly level changes each week. The monthly level changes at the end of each month, the latest on Aug. 30. The quarterly level was changed at the end of June.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.
To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.