Morgan Stanley (MS) has dropped off the radar in recent years, with louder Wall Street voices getting most of the press coverage. But the old-school investment bank booked an impressive 2016 recovery, led by impressive bond trading revenue, and could now test lofty price levels not seen for the last decade. The company will write the next chapter of this developing story when it reports fourth quarter earnings on Jan 17.
The stock rose nearly 30% after the presidential election and has been stuck in a sideways pattern for the last three weeks. It’s said that overbought technical conditions can be worked off through price or time so the current trading range may have a beneficial effect on the long-term outlook. However, other fourth quarter leadership has neared intermediate sell signals in the last week, so a measure of caution is advised until earnings results are disseminated.
MS Long-Term Chart (1993-2017)
The company came public above $6.50 (post two stock splits) in a February 1993 IPO and ground sideways in a tight trading range into a 1995 breakout and uptrend that unfolded in a series of waves into the September 2000 top at $91.31. That price level marks the highest high in the company’s history even though rivals, including Goldman Sachs Group (GS), posted much higher highs during the mid-decade real estate and derivatives bubble.
It sold off during the Dot-com bear market, finding support at a four-year low in the mid-20s in October 2002. The subsequent recovery continued into 2007, finally stalling at the .786 Fibonacci selloff retracement level in June of that year. A slow slide accelerated into 2008, posting lower lows into October when the bottom dropped out of world markets. The decline ended in a final plunge to a 14-year low at $6.71, giving way to a bounce that topped out one year later at the .386 bear market retracement level.
Higher 2011 and 2012 lows set the stage for an uptrend that reached the 2009 high in 2014, yielding a breakout that failed to develop momentum. Price drifted under new support in the second-half of 2015, triggering a failed breakout that yielded a higher 2016 low. Price action since that time has carved a 100% V-shaped rally into the 2015 high, followed by a minor breakout that’s stalled at a 7-year rising highs trendline and the 50% bear market retracement.
MS Short-Term Chart (2014-2017)
The stock added less than 2-points to the 2014 high in July 2015 and sold off, completing a double top and early 2016 breakdown to a 2-year low. It struggled into the Brexit referendum and entered a healthy recovery that accelerated following the presidential election. Straight up price action between 34 and 44 is now getting worked out of the system through a narrow trading range that could offer a bullish springboard following next week’s earnings report.
On Balance Volume (OBV) ticked higher into the middle of 2015 and then lost ground into 2016, with funds hitting the sidelines during the steep decline that ended the commodity bear market. Value hunting and bottom fishing in the first half of 2016 accelerated into full blown accumulation by November, lifting the indicator to its highest high of the decade while underpinning a strong uptrend that could add many points in 2017.
The Bottom Line
Wall St investment house Morgan Stanley rallied to the midpoint of the 2008-09 bear market after the presidential election and dropped into a holding pattern that could yield a strong trend following the Jan. 17 earnings release. While fourth quarter financial leadership looks heavy right here, this stock could ignore mixed technical readings and enter a much stronger uptrend.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>