The excitement is building to a fevers pitch ahead of the WFC earnings in the morning. WFC will set the tone for the markets tomorrow but more importantly, perhaps for the weeks ahead. Traders are fully expecting the financials to lead the parade higher for the markets from now into summer time. WFC either reinforces this direction, or falls on its face. Simply using the charts as a guide would project lower prices moving forward. The daily chart has universal negative divergence in place for the indicators (red lines) over the last month, with overbot stochastics, which says a smack down for price is in order. The blue bars show a potential H&S pattern in play with head at 36, neck line at 29.5, which would target 23.0 if 29.5 gives way.
The weekly chart shows the negative divergence spank down that occurred in September. Since all indicators were negatively diverged there is no reason for price to come back up again for a matching or higher high, the universal negative divergence says price should simply continue lower. Well, price came back up for another look. Negative divergence cannot exist until a higher high in price occurs so the thin red lines show negative sloping indicators but price would need to print the matching high at 36 to lock in the negative divergence, but again, the chart would not require this, the chart would be content with WFC simply heading lower from here. The H&S pattern is highlighted on the weekly chart as well and shows the 23-24 landing zone if 30 fails.
The projection is for WFC to move sideways to sideways lower moving forward and to lose the neckline at 29.5-30.0 in the weeks ahead. Of course with earnings on tap in the morning, a blow-out quarter will result in a bounce but that would likely set up negative divergence anyways as discussed above. The charts say down, what will the earnings release in the morning say?
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I bet both ways however, with a weekly strangle call/put straddle at 35. So far the late rally has put me above break even. If it breaks the other way, it will not be subtle and then I am still profitable.