PreMarket Prep Stock Of The Day: Wells 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 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.

With the stock index futures deep in the red during Thursday’s show, the hosts were taking a contrarian stance on the markets in some issues. In other words, instead of “selling into the hole” they were looking for a “buy the dip” opportunity.

One that was discussed in great detail was Wells Fargo WFC, making it the PreMarket Prep Stock Of The Day.

The Set Up: In the words of co-host Dennis Dick, “if you missed the boat in the issue on its run from $22 to $33.89, the boat is coming back to the dock.”

It should be noted the issue was discussed as a scalp, short-term swing trade, or even a longer-term trade if the U.S. can avoid a second wave of COVID-19.

The Technicals: As is often common with stocks, an extended rally of a few weeks can evaporate in a matter of days. With respect to Wells Fargo, its jaunt from its May 16 low ($22) to its high on June 5 ($33.89) occurred over 16 trading sessions. However, over half of that gain has vanished over the last four trading sessions.

50% Retracement: With the co-hosts not being followers of the Fibonacci retracements (.382 and .618), their combined 50-plus years of experience has them favoring only the 50% retracement of a move.

Doing the simple math reveals that halfway back from $22 to $33.89 is $27.94. Since the issue was already trading below that level when it was being covered on the show, Dick explained another tactic to play the issue on the long-side, besides randomly buying the issue just because it was below that price.

All About The Opening Print: Based on the fact that active traders and algorithms often initiate large positions on the opening print, it can often be an excellent reference point. Instead of randomly buying the open ($27.20) in the event it continues lower, which it did, going long the issue when it came back up through the open would be a valid setup. If executed, leaning on the initial low could have been a possible exit if on the wrong side. The author of this article calls it the “The Whoops” trade.

The End-Result: The flush off the much lower open took the issue to $27.02, but when it came up through the open ($27.20), it kept on moving higher. Where to exit is always the tricky part, but based on a 2 to 1 risk-reward ratio, the potential exit of $27.60 was easily achieved as of the 11 a.m. EST. The high for the day stands at $28.42.

A recap of the discussion on today’s show can be found here: