Wells Fargo Could Confirm Turnaround on Earning Beat

Wells Fargo & Company (WFC) was reported to be the third largest of the four "too big to fail" money center banks in the first quarter. This was a decline from number two, while Bank of America Corporation (BAC) moved from third to second. Judging from the daily and weekly charts shown below, investors have forgiven Wells Fargo for its sins involving fraudulent account activities against its depositors. The question is whether the banking giant is still losing clients, which resulted in the bank's decline to number three from number two in terms of total assets.

The stock closed Wednesday, July 11, at $56.07, down 7.6% year to date and in correction territory at 15.4% below its 2018 high of $66.31 set on Jan. 29. As a sign of forgiveness, the stock is 11.6% above its 2018 low of $50.26 set on April 18. Analysts expect Wells Fargo to post earnings per share between $1.12 and $1.16 when the bank reports results before the opening bell on Friday, July 13. The consensus is that the fake account scandal that surfaced about two years ago remains a problem as additional incidents continue to surface. According to many on Wall Street, it will be a challenge for Wells Fargo to beat earnings estimates. (See also: Wells Fargo Stock May Fall 7% Amid Tepid Growth.)

The daily chart for Wells Fargo

Wells Fargo began 2018 staying below its annual risky level of $67.18 when it set its 2018 high of $66.31 on Jan. 29. The stock subsequently traded as low as $50.26 on April 18, down 24.2% and into bear market territory. The 11.6% rebound off the low has the stock just below its 200-day simple moving average of $56.37. The horizontal lines show the stock above its weekly pivot of $55.57 and below its monthly and semiannual pivots of $57.32 and $57.48, respectively, with its quarterly and annual risky levels of $61.46 and $67.18, respectively.

The weekly chart for Wells Fargo

The weekly chart for Wells Fargo is positive, with the stock above its five-week modified moving average of $55.18. The stock is above its 200-week simple moving average at $53.42, which is also the "reversion to the mean," which held at the end of June. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 72.50 this week, up from 68.48 on July 6.       

Given these charts and analysis, investors should buy Wells Fargo shares on weakness to the 200-week simple moving average of $53.42 and reduce holdings on strength to my quarterly risky level of $61.46. (For more, see: 9 Bank Stocks That May Rise on Rich Payouts.)