Wells Fargo's (NYSE:WFC) 3.23% dividend has been one of the the most compelling reasons to own the stock, given its string of scandals in recent years.
But now that the 10-year Treasury note is yielding about the same, investors looking for reliable fixed income may see the government bond as a much safer bet.
As Friday's Q3 earnings report nears and with WFC shares currently trading 11.77% lower year to date, it's decision time for investors. In our opinion, earnings have to be dramatically better than expected to overcome the loss of trust both consumers and investors have suffered over the past few years.
But even if Wells Fargo outperforms, investors would be wise to consider another equity with a similar dividend or perhaps a less risky asset such as the 10-year. The 10-year note is right near Wells Fargo's yield, so why risk capital on a falling stock when you can get the same income with virtually no risk?
On Sept. 10, the bank's stock price fell below its uptrend line from October 2016 for the second time since March 19. Friday, the price crossed below the 200 DMA, which has traced the neckline of a head-and-shoulders top. A fall below the $50 level would trigger stop-losses and tip the market balance to oversupply.
Trading Strategies – Short Position Setup
Conservative traders should wait for at least a 3% penetration and/or three days in which the price was below the neckline, preferably to include a Friday, which demonstrates traders’ commitment to their positions. Then, they may wait for a return move to confirm resistance, with at least one long red candle, engulfing a preceding red or small candle of any color.
Moderate traders may be satisfied with a 2% penetration and/or two days with the price below the neckline to avoid a bear trap. Then, they may wait for a return move for a better entry, but not necessarily for confirmation of the new trend.
Aggressive traders may enter a short after a 1% penetration and/or one day for the price to remain below the neckline.