I am not making a prediction as to where this stock is headed. I am not saying that now is the time to load up on this stock. The point of this post is to point out a relatively low risk trade that MAY happen.
Take a look at these two charts of the price of WFC. The first is a longer term weekly chart. (each bar represents a week of price movement) The second chart is the daily chart of WFC.
On this weekly chart I have highlighted the first "cup and handle" that formed over the period of time from Oct. of '08 to Feb. of '10. (green line)
The second "cup and handle" is from Apr.'10 to present.
The price of this stock could go up or down from here. However, the consolidation pattern, that triangle outlined by the green, gives a speculator a good spot to limit risk.
The trade would be to buy a 1/3 position at about $32.50. If price continues higher, buy somemore at $33.00. If price makes it to $35.00 buy the last 1/3.
Keep track of the average price of your buys and at no time let your trade cost you more that 5%. You will note that if you put on a position in this manner that your average price is always below the present price of the stock. Therefore you always have a profit before you add more shares.
If the stock turns down, and costs you more than 5%, sell your shares.
If you get a full position on, then it is up to you to sit on your trade as long as you can.
Remember: I am NOT saying that WFC is going up! I am saying that IF it goes up there is a low risk way to get into this trade.
Notice that this stock broke out of the first cup and handle in early '10, then fell back in. That trade did not work. So one should have sold and taken a small loss.However I have discovered that when multiple cup and handles form in different timeframes they can be very profitable trades if done properly. Also there is a saying: "There is no such thing as a triple top". There is no fundamental reason why a stock will reach the same high for a third time. If it does, it usually means that it is headed higher. WFC has hit $35 three times now.....