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Wells Fargo - When to Buy the Dip After Earnings Stumble

Wells Fargo is falling more than its peers after reporting earnings. Is there an opportunity to buy the stock? Let's look at the charts.

Wells Fargo  (WFC) - Get Wells Fargo & Company Report was one of three major banks that kicked off earnings season on Friday, joining JPMorgan Chase  (JPM) - Get JP Morgan Chase & Co. Report and Citigroup  (C) - Get Citigroup Inc. Report.

Down 6% on the day so far, Wells Fargo is the worst performer of the bunch.

Given the rally we saw coming into the event, it’s no surprise to see these bank stocks selling off. Even with the dip, they are still up big over the last few weeks and months.

Wells Fargo's earnings of 64 cents a share beat analysts’ estimates of 58 cents. However, revenue missed consensus expectations.

So far, shares are bouncing off the lows in midday trading. Can Wells Fargo recover more of the losses or should investors plan for more downside?

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Trading Wells Fargo

Daily chart of Wells Fargo stock.

Daily chart of Wells Fargo stock.

At one point, shares were down more than 8%, before bulls began to step in and bid Wells Fargo stock higher.

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That action could push shares back over the 10-day moving average, which would be relatively healthy price action and show investors’ commitment to the bank.

We will use that observation as a way to gauge Wells Fargo stock.

If it recovers the 10-day moving average, then let’s see if shares can get back above the $33.50 resistance mark and the 38.2% retracement. If it can, the recent high near $35 is on the table, followed by a possible move to the 50% retracement near $37.50.

The downside has a couple areas of interest. Like the 10-day moving average, we will use these areas to gauge investors’ interest in the stock.

In other words, if Wells Fargo stock can’t reclaim the 10-day moving average, traders should be open to the possibility that shares will fill the gap from Jan. 6 near $31 and test the 21-day moving average.

If that doesn’t hold as support, then the $28 to $29 area is on the table. 

In that zone, Wells Fargo stock finds a plethora of potential support, including the 50-day moving average, a VWAP measure, the 23.6% retracement and a retest of the December breakout level.

Lastly, should Wells Fargo really feel the selling pressure, the 100-day and 200-day moving averages could be a possible landing spot. Currently, those measures sit just under $26.50.