Buy Wells Fargo

Wells Fargo (WFC) , along with the bulk of the banking sector, got a powerful boost Thursday from the successful stress tests. Wells Fargo opened the session with a huge upside gap, its biggest of the year, and then stabilized with a 3% gain on the session. This impressive breakout move has left behind layers of support setting the stock up well for more upside.

During the six weeks before Wells Fargo's post-earnings breakdown on April 13, the stock was already in a deep selloff. Despite the weak action that followed the last earnings news, further downside was limited as shares regained their footing near a major support zone. This key area, which marked multiple monthly highs as well as an upward sloping 200-day moving average, held again at the May and June lows. As this week's rally extends, a major bottom now appears to be in place near $52.00.

Looking ahead, investors should consider Wells Fargo a low-risk buy on weakness. There is now a very solid support zone nearby that includes the May peak ($55.60) at the upper band and the initial June highs at the lower band. Wells Fargo has plenty of room to run before entering overbought territory, so a run back up to major supply near the $58.00 area looks likely.

Bloomberg Pro Terminal

Trader Velizar Mitov

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