Stock Of The Day: Is The Stage Set For A Wells Fargo Rally?

Wells Fargo & Co WFC shares are trading lower on Friday. This is despite the company reporting earnings higher than estimated, coming in at $1.39, which was five cents ahead of estimates.

The stock may be about to trend higher. It is trading at a support level and stocks can rally off of support. This is why we have made it our Stock of the Day.

You can see on the chart that after the panic selling that occurred over the past two weeks, the shares found support around $60.40. This didn't happen due to a coincidence. There is support at this level because it was resistance in July.

Resistance becoming support is a frequent occurrence in financial markets.

Some people who sold around $60.40 came to think they made a mistake when the resistance was broken in October and the price moved higher. A number of them decided to buy shares back if they could eventually do so at the same price they sold them.

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So when the stock fell back to this level, they placed buy orders. There were so many of these buyers that they formed a support.

Some of these buyers may become concerned that other buyers will cut in front of them by increasing the prices they are willing to pay. As a result, they increase the prices they are willing to pay. Other buyers do the same.

This bidding war could result in an uptrend forming.

If Wells Fargo reaches the $66.30 level, it may hit resistance again. There is resistance here because it was support, and just like resistance can become support, support levels can become resistance.

Some people who bought shares around $66.30 regretted doing so when the support broke and the price dropped below it. When the shares rallied back up to this price, some remorseful buyers placed sell orders. There were so many of them that it created resistance.

Sometimes, stocks sell off after reaching resistance. This happens when the sellers undercut each other, so the buyers will go to them. This could result in a snowball effect that pushes the price lower.

This is what happened when Wells Fargo hit this resistance before. There is a good chance that it will happen again.

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