Diamond In Wells Fargo Will Continue The XLF’s Reversal Down

As the XLF’s largest component at about 10%, Wells Fargo (WFC) is worth watching considering that this stock has corrected by just a little more than 10% at its worst YTD compared to some of the other big banks that are down about 30% YTD with WFC propping up the XLF to a large degree. It appears, though, that WFC may just be about to take another dip down on a Diamond Top.


It will confirm at $31.91 for a target of $30.10 and pretty close to the target of the Rising Wedge that also confirms at $31.91 for a precise target of $29.80 and a potential decline of 10% - again.

Could WFC’s Diamond Top make the less-typical break to the upside that confirms at $33.72 for a target of $35.53? Yes, but this potential move up would play into the sideways trend of the bearish multi-year Broadening Top that should pull WFC down to its bottom at about $22.50 within 6 to 12 months while a possible upside breakout from this aspect toward an upside target of $48 and above the 2009 peak is highly unlikely.


Bringing WFC back to the XLF in the near-term, its Diamond Top may be the technical aspect that will fill the latest plan-to-save-Europe-euphoria gap at $14.28 and a level that would confirm an Island Reversal for a target of $13.94 to confirm, in turn, the XLF’s smaller Rising Wedge for a target of $13.28.


Interestingly, though, in the context of the XLF’s 3-year chart, these near-term technicals appear to be mere nuances considering that the XLF’s major Rising Wedge born of the Operation Twist and truly the LTRO rally is fulfilling toward its $10.95 target for a possible decline of 24% from current levels and this pattern should be taken very seriously unless the XLF shows signs of taking out this year’s high of $16.01.

Overall, then, it does seem that a Diamond in WFC will continue the XLF’s reversal down.