Wells Fargo & Co. (WFC) sold off more than 2.00% on Thursday morning after reporting flat revenues and a smaller than expected first-quarter profit, telling market players that fallout from the 2016 scandal continues to weigh on growth objectives. As we’ve seen with other corporate shenanigans in recent years, it can take a long time for customers and potential investors to forgive and forget.
Quarterly results benefited from higher interest rates, with the company booking stronger profits from the widening spread between overnight lending rates and the rates charged to customers. The unimpressive results came just one day after Wells outlined findings and recommendations from a board investigation into last year’s shocking revelations about company sales practices.
WFC Long-term Chart (1993-2017)
The stock bottomed out at a 2-year low in 1990 and entered a multi-wave uptrend that continued into the December 2000 high at $28.19. It held up well during the Dot.com bear market, trading within 9-points of the rally high, ahead of a 2004 breakout that eased into a shallow rising channel. It continued to add points at a lazy pace into the second half of 2006 when the rally topped out near $37.
Aggressive sellers took control after an October 2007 test at range resistance, with price spiraling lower into the 2008 economic collapse. The bearish impulse dropped the price to a 12-year low in single digits in March 2009, but the company avoided bankruptcy, unlike many of its banking peers. That resiliency underpinned a 2009 bounce that recouped more than 25-points into the 2010 peak at $34.25.
Resistance at that level persisted into a 2013 breakout that also completed a 100% round trip into the 2007 high. The stock gained ground at a gradual pace into the 2015 top in the upper 50s, ahead of a complex decline that eventually found support at the 50-month EMA in the mid-40s. The broad pattern in the last 18-months has drawn the outline of a rectangular correction that shows equal odds for bullish and bearish outcomes.
The monthly Stochastics oscillator entered a long-term buy cycle in May 2016, but it took another six months to generate the upside predicted by that leading indicator. It hit the overbought level at the start of 2016 and has now crossed into a sell cycle that should generate at least six to nine months of relative weakness. This headwind doesn’t bode well for the company’s efforts to overcome its self-inflicted wounds.
WFC Short-Term Chart (2015–2017)
The rally peaked at $58.76 in July 2015 and rolled over in multiple selling waves that found support in the mid-40s in February 2016. It tested that level two more times into October’s 3-year low at $43.55, ahead of a post-election bounce that lifted the stock into resistance at the 2015 high in December. A breakout into March 2017 got faded badly, triggering a reversal and pattern failure that signals a potential double top.
On Balance Volume (OBV) peaked in the middle of 2014 and entered a mild distribution wave that accelerated to lower ground in the second half of 2015. Stabilization through the first half of 2016 gave way to a climactic plunge, with funds and institutions abandoning positions following scandal disclosures. The rally into 2017 improved weak sponsorship but sellers have returned once again, telling us that big money is still reluctant to own this formerly traditional banking play.
The Bottom Line
Wells-Fargo failed a first quarter breakout in March, turning south at 2015 resistance, in a decline that could eventually complete a bearish double top. It gapped through the 200-day EMA at $53.25 after earnings and needs to recover this level quickly, or risk continued downside into the upper-40s.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>