Wells Fargo Reports Earnings Next Week. What Do Its Charts Say?

4 paź

Wells Fargo WFC and other big banks will release third-quarter earnings next Friday (Oct. 12) in what’s often referred to as the unofficial start of earnings season. WFC has trailed the S&P 500 year to date, but what might technical and fundamental analysis tell us could happen next for the stock?

Let’s check it out:

Wells Fargo’s Fundamental Analysis

Wells Fargo currently trades at less than 11 times forward earnings, or about the same valuation as Citigroup C but a notch less than both JPMorgan Chase JPM and Bank of America NYSE:BAC. (Those banks were trading at about 12x forward earnings as I write this.)

For next week’s earnings report, the Street is looking for Wells Fargo to report $1.27 in earnings per share on $20.4 billion in revenue. That would be down from $1.39 EPS on $20.9 billion in revenue for the same quarter last year.

In fact, the S&P 500’s financial sector as a whole isn’t expected to post a very good quarter due to challenges in creating net interest income. FactSet expects the sector to post 0.1% in overall year-on-year earnings growth on 4% revenue gains.

That’s weaker than the 4.6% earnings growth and 4.7% revenue gains that FactSet projects for the S&P 500 as a whole. So, big banks are probably looking at some margin compression.

Meanwhile, Wells Fargo has been moving on from a 2016 scandal that saw the bank try to plump up its business by opening new savings, checking and credit-card accounts for millions of people who hadn’t asked for them.

The scandal prompted then-CEO John Stumpf to eventually resign, and the bank paid massive fines and lawsuit settlements.

However, WFC has avoided such scandals since current CEO Charlie Scharf took over in 2019. Instead, it’s been methodically taking steps to show regulators that it’s now worthy of being treated as something other than the banking sector’s pariah.

WFC recently submitted a third-party review of its risk and control overhauls to the Federal Reserve in an effort to remove a $1.95 trillion asset cap that regulators imposed on the bank in 2018.

Separately, Wells Fargo has made a series of senior-level hires the past couple of years to expand its investment-banking business, which has long been a weakness for WFC relative to other money-center banks. So, there’s an ongoing effort to capture market share in a business that really wasn’t contributing to Wells Fargo’s results.

Wells Fargo’s Technical Analysis

Now let’s go to WFC’s charts, beginning with a look going back to mid-2023 and running through midday Tuesday (Oct. 2):

Readers will see that WFC rallied from October 2023 into early May 2024. On the way down, the stock found temporary support at its 23.6% Fibonacci retracement level in June/July 2024, as denoted by the second-from-the-top black line above.

Wells Fargo also saw support at 38.2% Fibonacci retracement level (the third black line from the top) for one day in early August 2024. It also received support at the 50% Fibonacci retracement (the fourth black in from the top) in both early August and again in mid-September.

This created a so-called “double bottom” pattern within what’s known as a “falling wedge.” Both of these are historically patterns of bullish reversal.

Now let me erase the Fibonacci model so I can show you exactly what I mean:

In this chart, readers can see the falling-wedge pattern drawn with light-blue lines and the double-bottom pattern (with a $59 pivot) denoted with a purple line.

The stock is sitting on two positive technical patterns going into a known earnings date that could act as a potential catalyst.

Meanwhile, WFC’s Relative Strength Index (the gray line at the chart’s top) is very close to neutral, so that does not tell us much.

However, look at Wells Fargo’s Daily Moving Average Convergence Divergence (MACD), as denoted by the black and gold lines and the blue bars at the chart’s bottom.

All three components were negative as recently Sept. 18, which traditionally isn’t a bullish sign.

That said, the histogram of Wells Fargo’s 9-Day Exponential Moving Average (or “EMA,” denoted with the blue bars above) was in positive territory as of Tuesday. The 12-Day EMA (the black line above) has also moved above the 26-Day EMA (the gold line), which is also typically a positive development.

That 12-Day EMA is already above zero, but the 26-Day EMA is dragging below zero at this point. But if the 26-day EMA can move into positive territory without overtaking the 12-Day EMA and the 9-Day EMA remains positive, that would historically be a bullish set-up.

(Disclosure: Moomoo Markets Commentator Stephen “Sarge” Guilfoyle was long WFC as of the time of writing this column.)

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