Chart of the Day – Wells on Notice (WFC)

by Dan April 13, 2017 2:19 pm • Chart of the Day

Wells Fargo’s (WFC) gapped lower today following Q1 earnings results that fell short of expectations and saw (per Bloomberg) “a slowdown in its mortgage-banking business as rising interest rates crimp customer demand for refinancing”

The move lower places the stock almost at the exact mid-point ($52) of the one year range of $44 to $60, and at an important post-election breakout level:


What’s interesting about this chart is that much of the gains off of the stock’s 52-week lows, following their fake account scandal in the Fall, came in the two days after the surprise election result, gaining about 12%. The stock is clearly in no-man’s-land, and I think it is safe to say that the issues causing the banking sector’s underperformance ytd (flattening of the yield curve, lack of confidence in deregulation and tax reform) will be more pronounced at WFC as the company desperately tries to dig out of last year’s scandal.

But despite the relative underperformance, the stock still trades expensive to its peers at 1.4x book value, vs JP Morgan (JPM) at 1.25x and Goldman Sachs (GS) at 1.15x. I suspect we see lower lows.

Lastly if we are playing connecting the dots, looking at the 10-year chart, the recent rejection very near the prior all-time high, and today’s check back to its long term uptrend from its Financial crisis lows might prove to be an important technical inflection point, with the next target on the downside very near those 52 week lows in the mid $40s:


We have two trade ideas specifically targeting bank weakness, a Citi (C) trade we rolled yesterday, and an XLF put we’ll update soon.