Wells Fargo & Co.(WFC) climbed to an all-time high of 58.74 in July, 2015, but it has been a rough ride for the stock ever since. On January 18th, 2016, its share price fell to as low as 46.86. And while most would try to find the reason for the sell-off in the banking company’s fundamentals, we are going to take a look at Wells Fargo’s weekly chart, in order to see where does the recent weakness fit into the bigger picture.
According to the Elliott Wave Principle, trends progress in five-wave sequences, called impulses. Every impulse consists of three smaller impulsive and two corrective waves. Waves 1, 3 and 5 within an impulse move in the direction of the larger trend, while waves 2 and 4 develop against it. Judging from the weekly chart of Wells Fargo & Co. stock, it looks like the whole recovery since March 2009 is an unfinished impulse, whose fifth wave is missing. This means that the current decline should be labeled as wave (4). Fourth waves typically retrace back to the 38.2% Fibonacci level of the third wave. If we apply this guideline to Wells Fargo stock, we would come to the conclusion that the it may fall a little further to the 45.00 area. Nevertheless, this is not the time to sell, because once wave (4) is over, the bulls should return for wave (5) and take Wells Fargo & Co. stock prices to a new all-time highs.
