Sector: Banking/Money Center Banks
Wells Fargo Bank is the leading mortgage lender in the country; they buy roughly 1/3 of all home loans made today (they own my loan!). This is a great example of buying low and selling high, investing for value. Wells has been buying home loans hand over fist at historically low interest rates. What this allows them to do is later sell them to other investors as interest rates begin to rise to more typical levels. The bank will profit on the difference between interest rates on loans they purchased and then sold. At these low rates and the quantity that they hold, Wells has exceptional potential if the housing market continues to improve.
The price trend we are seeing over the past 3 years is beginning to look strong and is on the cusp of breaking out.
Generally when price is stuck in a range like this you will see it bounce from top to bottom. As we can see, price did just that between 2010 and early 2012. What was different this last time was that when the price pulled away from the upper resistance line, it didn't sell off to the lower end of the range, price created a higher low. It then turned and broke through the resistance area briefly only to come right back below. However, price has once again made a higher low and is now breaking above the resistance for a second time.
A general rule about support and resistance levels is that the more times a price level is tested, the more likely it will fail. As we can see above, the lower support area ($23) was tested twice between 2010 and 2012. The upper resistance level however has been tested 5 times in the same period. This kind of action leads me to believe that the upper level is about to be broken for good. As long as it can hold above the most recent higher low ($31.25), this looks like a great way to position yourself for a market rally and the improving housing market in the US.
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