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Here’s When You Should Buy Wells Fargo (Hint: We’re Close)

Wells Fargo has been the worst-performing big bank of 2019. Here's why that could change.

As 2019 comes to a close, it’s turning into a very unremarkable year for Wells Fargo  (WFC) - Get Wells Fargo & Company Report.

The bank is on track to end the calendar year as the worst performer of the big banks by a long shot, up just 16.8% on a price basis since the calendar flipped to January. For comparison, Wells Fargo's average peer has seen its share price rocket a whopping 44.6% over that exact same stretch.

And there’s added pressure on Wells Fargo this week. Wells Fargo on Wednesday was one of the big banks whose “living wills” the Federal Reserve and Federal Deposit Insurance Corp. found had shortcomings. On Thursday, shares of Wells Fargo were downgraded to sell by Dick Bove at Odeon Capital. Bove cited Wells Fargo's “directionless” business in the face of more aggressive rivals as a reason for the cut.

But while buyers ogle Wells Fargo’s competitors, this stock has been quietly inching its way closer and closer toward a classic buy signal.

In short, whatever fundamental gap there may be between Wells Fargo and its peers, it might not justify the huge performance chasm we’ve seen year to date. That means Wells Fargo could be ready to make up some of the ground between its price performance in 2019 and that of the rest of the banking industry.

To figure out how to trade it – and when you should buy shares – we’re turning to the charts for a technical look.

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At a glance, it’s clear that Wells Fargo experienced an important shift back in August – that’s when shares pivoted from a downtrend to a more aggressive, well-defined uptrend. Since early November, that uptrend has lost some of its steam as Wells Fargo has tracked sideways. It’s that sideways churn that’s actually setting up the next leg higher in this banking giant.

Wells Fargo is showing off a pretty textbook example of an ascending triangle pattern, a bullish continuation pattern that often comes up midway through a rally. The pattern is formed by horizontal resistance up above shares, in this case at the $54.50 level, and uptrending support to the downside. As Wells Fargo bounces in between those two technically significant price levels, it’s been getting squeezed closer and closer to a breakout above the $54.50 line in the sand.

When that happens, we’ve got a brand new signal that buyers are in control of shares – and that it’s time to join them.

Relative strength, the indicator down at the bottom of the WFC chart, is in an uptrend of its own right now, indicating that this stock has started systematically outperforming the broad market in the second half of the year.

From a risk-management standpoint, the 50-day moving average looks like a logical place to park a protective stop. If Wells Fargo violates its 50-day, then the uptrend is over and you don’t want to own it anymore.

Meanwhile, this big bank is within grabbing distance of a breakout this December. Stay tuned.