"Wells Fargo (NYSE: WFC) absolutely surprised Wall Street, which had downbeat expectations for lower earnings," reports Richard Rhodes, trading expert and editor of The Rhodes Report.

"WFC earned $1.75 billion or $0.53/share for the April to June period, which is down just a bit from $2.28 billion or $0.67 per share for the same period last year. Provisions for credit losses were $3 billion, which included increase in reserves for future losses of $1.5 billion.

"But what really surprised the market was that fact that WFE raised their quarterly dividend to $0.34/share per quarter from $0.31, a near +10% increase. In a world where most, if not all, banks are raising capital and slashing dividends - WFC sees fit to stand on the Left Coast and shout that 'all is fine in the water, come on in!'

"This should support the banking community today, which given yesterday's better-than-expected earnings out of First Horizon (NYSE: FHN), has tended to cause a bit of short covering in the banks.

"In our view, this will be a large test for the banking sector. We are interested in how it trades today given the good WFC news - WFC is higher by nearly +10% as we finish up writing, for if they can rally and hold their gains, we are apt to put on an aggressive long position to capture a sharper short covering rally that may cause value managers to 'dip their toe' into the water and become buyers.

"Expectations have been inordinately low; the regional banks are showing there are managing their businesses relatively well."

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