Wells Fargo & Company (WFC) shares fell to a seven-week low on Friday following the sudden departure of CEO Tim Sloan, less than three years after he took the helm from former boss John Stumpf. Stumpf got booted after a nine-year tenure, taking the blame for opening 2 million checking and banking accounts without customer consent. The New York Post reported on Sunday that federal regulators engineered Sloan's exit, believing that he has failed to reform Wells' corrupt culture.
Last week's decline signaled an ominous rejection at 50- and 200-day exponential moving average (EMA) resistance following a two-month test, while dumping accumulation-distribution readings back to 2011 levels. This bearish action opens the door to continued downside that is likely to reach December 2018's two-year low at $43.03. In turn, that would complete the next leg of a five-year topping pattern, raising the odds for much lower prices.
WFC Long-Term Chart (1990 – 2019)
The stock fell to a two-year low at a split-adjusted $1.69 in 1990 and turned sharply higher, entering a powerful trend advance that posted impressive gains into the 1998 high at $21.88. The uptrend then eased into a shallow trajectory, posting nominally higher highs in 1999, 2001 and 2002. Minor pullbacks during this period completed the lower trendline of a rising wedge pattern that remained in force throughout the mid-decade bull market.
The uptick stalled in the mid-$30s in 2006, giving way to a narrow consolidation, followed by a 2007 downdraft that broke wedge support and set off major sell signals. Volatility surged into September 2008 when Treasury Secretary Hank Paulson prohibited banking sector short sales, triggering a ferocious squeeze that lifted Wells Fargo stock to a new high at $44.69. World markets then collapsed, dumping shares of the bank to a 12-year low.
It took nearly five years for the subsequent recovery wave to complete a round trip into the 2008 high, generating an immediate breakout that ran out of steam in the upper $50s in 2015. It sold off into the fourth quarter 2016, posting a three-year low ahead of the presidential election, and rallied back to the prior high in 2017. A January 2018 breakout failed after hitting an all-time high at $66.31, giving way to a multi-wave decline that reached a two-year low in December.
An oversold bounce into the first quarter reversed at the 50-month EMA, which was violated at year end, confirming strong resistance above $50. The monthly stochastics oscillator has spawned mixed signals in the past year, turning lower after selling off in the middle of a strong 2018 buying cycle and entering a fresh bull cycle just a few weeks before it reversed at moving average resistance in March.
WFC Short-Term Chart (2016 – 2019)
The 2018 decline completed a 100% retracement of the uptrend that started in 2016, signaling a major failure. The bounce into March stalled and reversed at the .382 Fibonacci sell-off retracement level, which narrowly aligned with 200-day EMA resistance. Sellers broke the 50-day EMA on March 22, while last week's decline confirmed new resistance after a seven-week test. As a result, swing lows at $47 now mark the last trading floor ahead of a return trip into last year's low.
The on-balance volume (OBV) accumulation-distribution indicator hit a four-year high in 2014 and entered a distribution phase that continued into the 2016 low. Dip buyers jumped in after the account scandal, but buying power fizzled out in early 2017, yielding a downturn that continued into 2018's seven-year low, The first quarter bounce attracted little buying interest, while last week's heavy selling volume is generating a major test and likely breakdown through that support level.
The Bottom Line
Remaining Wells Fargo shareholders are jumping ship after the departure of CEO Tim Sloan, raising the odds for a major breakdown through five-year support in the lower $40s.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.