The Federal Reserve is in focus this week, after the central bank declined to raise interest rates at this month's policy meeting, and attention turns to President Donald Trump's likely nominee for the Fed chair.
On Wednesday, the Fed released a statement that it was on track to raise interest rates again in December, offering bland commentary on the state of the economy as U.S. stocks hit new all-time highs. Meanwhile, Trump is widely expected to nominate Fed governor Jerome Powell to head the Fed.
The possibility of a change at the Fed isn't worrying Wall Street too much—Powell has been in favor of policies under Chairwoman Janet Yellen's Fed, and isn't likely to rock the boat unduly.
The announcement is expected to happen at 3 p.m. Thursday at the White House.
Meanwhile, all that Fed attention is naturally putting a spotlight on the big banks. 2017 has been a stellar year for mega-cap banks, with one notable exception: Wells Fargo Co. (WFC) - Get Wells Fargo & Company Report .
Wells Fargo is the only member of the big-four U.S. banks that hasn't been participating in 2017's stock market rally. Shares of WFC are up just 1.5% year-to-date, while its three big peers, Bank of America (BAC) - Get Bank of America Corp Report , Citigroup (C) - Get Citigroup Inc. Report , and JPMorgan Chase (JPM) - Get JPMorgan Chase & Co. Report , are up an average of 21% on a price basis over that same timeframe.
That's some substantial underperformance from Wells Fargo.
The good news for Wells Fargo bulls is that this stock is finally showing signs of an upside move again.
To figure out how to trade it, we're turning to the chart for a technical look:
Wells Fargo is currently forming a long-term inverse head and shoulders pattern, a bullish reversal setup that could breathe some much needed life into this banking sector laggard.
The pattern is formed by two swing lows that bottom out at approximately the same level (the shoulders), separated by a lower low (the head). The buy signal comes on a move through Wells Fargo's neckline up at $56, a price level that's within grabbing distance as I write today.
Relative strength, measured by the indicator down at the bottom of WFC's price chart, has been signaling this stock's laggard status for most of 2017, dropping in a downtrend that's indicated WFC's underperformance versus the rest of the market. That relative strength line, though, is very close to the top of its range, which means that it could affect a change of trend here. If that happens—particularly if it happens at the same time as a price breakout through $56—then we've got a strong signal that buyers are taking back control of this stock.
Near-term, it's still too early to pull the trigger on the WFC trade. Shares of Wells Fargo need to materially move through the $56 level to call it a breakout. That said, this big bank's proximity to that key level, plus the Fed news on tap this week, could make WFC a buy sooner rather than later.
It makes sense to keep a close eye on the price action in Wells Fargo here.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.