"In the short term, the market is a popularity contest. In the long term, the market is a weighing machine."
- Warren Buffett
Wells Fargo & Co. (WFC) is the second largest holding in Warren Buffett's (Berkshire Hathaway (BRK.A) , (BRK.B) ), portfolio. WFC has been in the financial press more than most companies but unfortunately for the wrong reasons. Mr. Buffett believes that Wells Fargo will get through their troubles and "clean things up." That's what I love about fundamental investors -- they see beyond today and look out a number of quarters. I don't have the patience or the deep pockets of Mr. Buffett when I look at charts.
In this daily bar chart of WFC, below, we can see that WFC started an uptrend in early September; however, it suffered a pretty bearish setback this month. The damage to the charts and indicators has been considerable. WFC gapped sharply lower in early February and volume surged sharply. Prices tested and found support around the 200-day moving average line just below $56 but the subsequent rebound stopped at the underside of the 50-day moving average line.
The daily On-Balance-Volume (OBV) line made a slow and underwhelming advance from September to the end of January and has weakened this month. A rising OBV line tells you that buyers are being more aggressive while a declining line tells you that sellers are dominating. The Moving Average Convergence Divergence (MACD) oscillator is constructed from moving averages so it follows the trend. The MACD indicator turned bearish earlier this month but looks close to a cover shorts buy signal.
In this weekly bar chart of WFC, below, we can see that prices recently tested the rising 40-week moving average line. The weekly OBV line peaked in January and the weekly MACD oscillator crossed to a take profits sell signal.
In this Point and Figure chart of WFC, below, we can see a strong up move (a column of X's) followed by a strong down move (a column of O's). The chart shows a potential upside price target of $72.14 but trades at $61.64 and $66.74 are needed to strengthen this chart.
Bottom line: WFC may indeed put their problems behind in the months ahead but for me the charts need more work. A rally above $62 could restart the uptrend but a close below $54 are likely to embolden the bears.