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Monday morning has greeted the Street on an optimistic note toward large banks, as Goldman Sachs (NYSE: GS) has upped its coverage on the banking sector to "attractive" from "neutral." Goldman went as far as to name some specific banks, including Wells Fargo (NYSE: WFC), which it upped to "buy."
Goldman believes that Wells Fargo's capital position is improving, with it eventually benefiting from its takeover of Wachovia. The brokerage stated that Wells Fargo purchased Wachovia at a "distressed price" and that will help its assets increase 70% from the second quarter of 2007 to the second quarter of 2009.
In my opinion, Wells Fargo is going to need to validate this upgrade by breaking through resistance in the $28-$30 region. The stock is more than 4% higher in early trade, but that has not helped puncture the overhead resistance from the aforementioned region. The good news is that the stock does enjoy support from its 10-month moving average. Of course, this trendline is in the midst of slipping lower, so the level of support affords room for the stock to fall further. If today's upgrade can't help WFC get through the $30 level, I'm not sure what will other than solid earnings. If you think that the stock still has room to run higher, let it come down a bit before investing. Today's rally could be inflated and quickly deflate when faced with resistance.
As for me, I'm not buying into WFC's rally; I just think there are too many overhead hurdles for the stock to clear. Of course, this doesn't mean that Wells Fargo isn't worth watching. A clear breach of the $30 level could signal a rally -- it just may take a while.
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