Stock trader identifies one name to watch for a big bounce

Delhidream divas April 16, 2018

5 min read

This week, JPMorgan Chase, Citigroup and Wells Fargo Bank got a profit on Friday morning, which is a big time for the big bank to be a success or a break.

Financial stocks are about to recover on Thursday morning and the XLF ETF has risen more than 1%. Despite the surge, the group is still the worst performer in the past month. However, "Option Action" trader Mike Cau said that the recent surge in options activity in this group may indicate that the trend is about to change.

"This week, the XLF activity is above average," Khouw said on CNBC's Fast Money on Wednesday. "[Thursday] we see an average daily volume of about 1.5 times."

The three top holding companies of the financial ETF - JP Morgan, Citigroup and Wells Fargo - are expected to rise 3% in both directions when the report is released this Friday. Khouw advised investors to pay close attention to Wells Fargo.

"I think Wells Fargo is here we want to see," Khouw said. "This is a person with a bit of special risk."

Wells Fargo Bank fell this year and has fallen more than 14% since January. The California-based financial company has been striving to maintain steady growth after its 2016 major accounting scandal broke. However, Khouw pointed out that the most recent trading pattern in the chart indicates that the stock is resistant.

"Continuously, we have these controversies out and the stock market has bad news, but actually it has recovered a little bit," he explained.

Wells Fargo Bank surged more than 30% from its September 2017 low to its January 2018 high. Since then, the stock price has fallen by more than 20%, but Khouw expects to support prices at around $50, allowing the stock to "slightly rebound" on the level of earnings.

Wells Fargo reported on Friday before the bell. In the last quarter, the bank missed revenue and earnings per share expectations and fell in this transaction.

Wells Fargo's stock price traded earlier Wednesday afternoon was approximately $52.55.

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