Wells Fargo Likely to Test Upside Resistance

Published on Monday, 06 February 2012 17:13 Written by David Becker

New York, February 6^th (TradersHuddle.com) – Despite some recent negative headline news in the banking sector, Wells Fargo (NYSE: WFC) continues to remain buoyed.  Last week, New York State Attorney General Eric Schneiderman sued three major U.S. banks, accusing them of fraud for using an electronic mortgage database that resulted in deceptive and illegal practices.

Wells Fargo is currently filling in a gap created by a solid up move on the back of Friday's non-farm payroll report.  The gap is between the high on Thursday at 30.10 and the low on Friday at 30.35.  Once the gap is filled, the WFC is likely to test upside resistance near the recent highs at 30.91.  Support on the banking giant is seen near upward sloping trend line support near 29.90 and then horizontal trend line support at 28.85.  A break of this level would target support near the 50-day moving average at 27.75.

During January, the 50-day moving average crossed above the 200-day moving average, which lead to further upward momentum in the stock price.  Unfortunately, the MACD is showing a short-term divergence where the index line has dropped below zero, as WFC gapped up on Friday.  This is a sign that momentum in the stock price is beginning to slow.  The MACD experienced a negative crossover in late January, which is a sign of negative momentum.

When the stock reached its peak on January 23, the price action coincided with an overbought signal on the RSI.  The index experienced a reading of 73, before declining lower reflecting a more neutral situation.

The Bollinger bands are beginning to contract toward the 20-day moving average, which is a reflection of a stock that is consolidating.  WFC is hovering near the upper end of the Bollinger band, which could mean that the price has stretch to far.  Look for the stock to hold support near the 20-day moving average, before gaining traction and potentially moving higher.