Eight years and one fake accounts fiasco later, Wells Fargo’s uptrend is approaching its end
The last time we wrote about Wells Fargo was in late-January, 2016. Fourteen months ago, the stock was trading below $49 a share, after a decline from $58.74. It was a $10-drop, which for the bank’s investors meant a 17% capital loss. In the ARTICLE, titled “Wells Fargo Bulls, Do Not Be Afraid”, we suggested the bears would probably drag the price a little lower, but eventually a new all-time high should be expected, so there was not reason to worry. The positive outlook was based entirely on the Elliott Wave analysis of the chart below.
The stock market’s way to progress is by drawing a five-wave impulse in the direction of the trend. Hence, we assumed Wells Fargo was declining in wave (4) of the same pattern. Fourth waves usually retrace back to the 38.2% Fibonacci level of wave of the third wave. In that case, WFC was not there yet, so we thought more downside was likely. That was before the fake account scandal in September, 2016!
Once the scandal erupted, the market did what it was supposed to do anyway. Walls Fargo’s stock price plunged to $43.53 in October, after it became clear the bank was going to pay a $185 million fine for opening over 2 million bank account or credit cards without its customers knowledge or permission. As a consequence, 5300 employees were fired, while chairman and CEO John Stumpf was forced to retire.
But as Elliotticians very well know, news do not determine the market’s direction. As predicted, the stock quickly rebounded in wave (5), which in late-February, 2017, reached the vicinity of $60 a share. Here is how Wells Fargo’s weekly chart looks like today.
Wave (4) took more time than we thought, because wave “b” developed as a triangle. However, nothing changed and the bulls returned to lift the price beyond the top of wave (3), completing the five-wave rally, which has been in progress since the low in March, 2009. Unfortunately, every impulse is followed by a three-wave correction of similar degree against it. If this is the correct count, Wells Fargo investors should get ready for another sell-off towards the $40 mark.
In conclusion:
- The market followed the Elliott Wave rules, regardless of the news
- Despite the fake accounts scandal, Wells Fargo climbed to a new all-time high
- The stock might lose nearly 30% from current levels
