Don't Bank on Wells Fargo

 | Aug 11, 2017 | 12:43 PM EDT
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Action Alerts PLUS holding Wells Fargo (WFC) continues under selling pressure. We just covered the deteriorating price structure late last month, and we noted that, "Strength above $57.40 will improve the picture, but a trade at $59.86 is needed for a breakout. Weakness below $50.84 would be bearish." With prices under $52 today, another look is warranted.

The price of WFC continues to slip lower, so it looks like investors are voting with their feet or the mouse on their computers. Let's take a fresh look at the charts and indicators.

In this daily bar chart of WFC, above, we can see prices are below the flat 50-day moving average line and below the rising 200-day average. This is the third test of the $52-$51 area. The first test was in April. The second test was the end of May/early June. Prices recovered after each test, but take a look at the On-Balance-Volume (OBV) line, which has shown a downward pattern since March. These bounces did not attract much aggressive buying, unfortunately, and now the OBV line is close to a new low for the move down. In the lower panel of the chart is the 12-day momentum indicator, which is not showing a bullish divergence with the price action.

In this weekly chart of WFC, above, we can see prices are below the rising 40-week moving average line. The weekly OBV line has moved below its April low and the MACD oscillator is slipping below the zero line for an outright sell signal on this timeframe.

Bottom line: A close below $51 on WFC could precipitate a deeper decline to the mid-$40s.

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