The chart of Action Alerts PLUS holding Wells Fargo (WFC) has made a sufficient enough bottom to generate a bounce for traders, but for investors we would like to see a bigger base pattern.
In this daily chart of WFC, above, we can see that Wells Fargo has declined for most of the last 12 months as the financial sector has underperformed. It made a low in February this year and then made a higher low in April (so far). This is an improvement, but it isn't an uptrend. Prices have rallied to trade above the 50-day Simple Moving Average line, but remain below the 200-day average. The On-Balance-Volume (OBV) line has been flat since February after a long decline. WFC needs to close above its March highs to meet the simple definition of an uptrend -- higher lows and higher highs.
Read Jim Cramer's take on the banking sector
Looking at this longer-term weekly chart of WFC, above, you can see that prices rolled over the past two years. Maybe you can see the "neckline" at $50? The $50 area became a key resistance zone when prices broke below it.
Prices are below the declining, 40-week moving average line and the OBV line is pointed down, telling us that liquidation has been more dominant than accumulation. On this weekly time frame, we don't have a bullish divergence. Prices made lows in September, and lower lows in February, and the 12-week momentum study also made lower lows.
WFC could rally to around $52 -- where the 200-day and 40-week moving averages intersect -- but I think a more sustainable advance in the stock will need the development of bigger base formation.
