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PreMarket Prep Stock Of The Day: Well Fargo

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action fo

Benzinga · 05/14/2020 17:16

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

There are some bank stocks that have been killed as of late and then there is one that has been absolutely destroyed. That bank being Wells Fargo (NYSE: WFC), making it the PreMarket Prep Stock Of The Day.

See the clip below for an in-depth discussion of the banking sector and Wells Fargo from today's show:

2016 Fraudulent Account Scandal Comes To Roost In 2018

While many bank stocks have fully participated in the broad market rally over the past two years, Wells Fargo has not. Its troubles began in late 2016 when it was discovered that millions of fraudulent savings and checking accounts were created on behalf of Wells Fargo clients without their consent.

While it was mostly ignored by the Street in 2017, once the depth of the scandal and forthcoming fines were assessed investors began to exit the issue. After making its all-time high in December 2017 ($62.24), it retreated in 2018, ending the year at $46.08.

Riding The Market Higher In 2019, But Not In 2020

In the "buy everything" market of 2019, Well Fargo went along for the ride and rebounded to end the year at $53.80, well shy of its all-time high. However, it stalled at that level in January and weakened to end the month at $46.94 as the broad continued on to new all-time highs.

While the S&P 500 index retreated from peak to trough of 35%, Wells Fargo was halved when it fell from its February high ($48.50) to $25.11 in March. Similarly, the index rebounded 50% from its low, Well Fargo rallied only 35% when it peaked on April ($33.91).

Even more concerning is that the issue has not only repelled off that high, but went on to make a new 11-year low on Wednesday ($22.00), which it matched today and rebounded nicely to the $24 area.

Moving Forward

The weakness early in the week can be attributed to a few different things. It was moving in unison with other issues in the sector that were under selling pressure. And with 13Fs coming out shortly, who wants to be long Wells Fargo if Warren Buffett discloses he has exited the issue last quarter?

For those investors looking to pick a bottom in the issue and purchase shares at the $24 area, a good technical but not fundamental argument can be made. That being the issue has put a double bottom in place at the $22 area that coincides with a pair of monthly lows from June 2009 ($22.27) and July 2019 ($22.27), which may be a potential exit point if there is no follow-though on today's rally.