Boston, MA 09/24/2014 (wallstreetpr) – Wells Fargo & Co (NYSE:WFC) (Closed: 52.10 Down: 1.51%) dropped for the third straight session after the news of the company paying $5 million in settlement to the US regulatory accusation of insider trading. The hard stance of the SEC against the company has obviously not taken well by the market and the last candlestick formation of the Three Black Crows, created in the last 3 sessions testify to that. This pattern is one of the best performing patterns with a success rate as high as 78%, though a pullback or a retracement bounce can’t be ruled out. The jump in volume to 20.3 million against the average of 13.3 million also shows the sellers’ interest.
In the daily charts, we can see the last rally from the August low of $49.47 to the September high of $53.80 to be nicely divided in to 3 distinct phases. The first phase ended at the high of $51.75, then the second phase of correction ended at the low of $51 and the third phase of a near equal rally, compared to the first, ended at $53.80. This subdivision strongly points to the possibility of an Irregular Flat in action with the July high of $53.08 being the actual top with the latest September higher high at $53.80 being the end point of the corrective rally. According to the Elliott Wave theory, the final leg of the correction has begun for a minimum target of $50.19, nearly coinciding with the channel support near $50.00-$49.75.
The bearish sentiment gets a boost from the current state of the indicators. Not only the last rally from $49.47 saw decreasing volume, it also created very clear negative divergences in both RSI & MACD on the weekly charts. So the best hope for the bulls would be to limit the drop to $50. Otherwise a break below $50 may certainly threaten the entire uptrend and open deeper targets of $46 or even $44.