4 Trades for the Upside in Wells Fargo: Bonus Idea
- Posted by Greg Harmon
- on March 27th, 2017
Here is your Bonus Idea with links to the full Top Ten:
It has been six months since the scandal with Wells Fargo, $WFC, opening fake accounts for customers without them knowing it. No one is in jail yet for this fraud and it seems most people have already forgotten about it. So probably no one will go to jail. Too bad but par for the course in Financial Services (see Corzine).
The stock price took a hit following the scandal, falling about 10% to a low in mid-September, and then consolidated. It held there for 6 weeks, but as soon as the election was over it jumped with all over financial names. It exceeded its all-time high from November 2016 by the first week in December and started to pull back. When it hit the 50 day SMA it found support in early January. From then it started higher in a slow trend up that ran until the FOMC meeting 2 weeks ago. The stock pulled back fast to its 100 day SMA last week and found support, almost 7% lower.
Friday saw a push higher off of support, indicating a confirmation of a reversal to the upside. The RSI also turned up off of the oversold area and the MACD started to level in its decline. There is support at 54.85 and 53.65 then 51.30, right at the 200 day SMA. Resistance above stands at 56.30 and 57.30 followed by 60. Short interest is low under 1% and the company is expected to report earnings next April 13th before the open.
Options this week are biased to hold it near 55 with the large open interest on the put side there. For the reporting week, the biggest open interest in the put side stands above at 56 and then on the call side at 58.5 and 59.5. Longer dated June options show a mass of open interest building from 55 to 62.5 on the call side, with size from 50 to 55 on the put side.
Wells Fargo, Ticker: $WFC
Trade Idea 1: Buy the stock with a stop at 54.75.
Trade Idea 2: Buy the stock and add an April 13 Expiry 55.5/53 Put Spread (70 cents) for protection and selling a June 60 Covered Call (67 cent credit) to fund it.
Trade Idea 3: Buy a April 13 Expiry 54/56/58 Call Spread Risk Reversal (25 cents).
Trade Idea 4: Buy the June 55 Call ($2.70) and sell the April 13 Expiry 54/56 Strangle ($1.55 credit).
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After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which heading into the end of the first Quarter sees equity markets showing some signs of cracking, with the IWM the worst.
Elsewhere look for Gold to continue in its uptrend while Crude Oil continues lower. The US Dollar Index also looks to continue lower while US Treasuries continue higher in their consolidation range. The Shanghai Composite looks to continue a slow grind up and Emerging Markets continue to look strong.
Volatility looks to remain low but drifting higher into more normal levels. This could hold back equities in the very short term. The equity index ETF’s SPY, IWM and QQQ, all had their biggest pullbacks of the year, leaving the IWM at the edge of support, the SPY pulling back and the QQQ consolidating. Use this information as you prepare for the coming week and trad’em well.
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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Gregory W. Harmon CMT, CFA, has traded since 1986 and held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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