Morgan Stanley (MS) shares sold off more than 6% in Thursday's pre-market session after the company missed fourth quarter earnings and revenue expectations by a wide margin. The bearish results follow a mixed bag for other investment and commercial banks, failing to sound an all-clear for sidelined players looking to build exposure. Rivals fell in sympathy after the news, signaling a potential end to the group's oversold rally.

The stock is still trading well below the 2007 bull market high, highlighting extensive balance sheet damage and profit-reducing federal reforms arising out of the 2008 market crash. Morgan Stanley stock fell more than 35% after topping out in March 2018, dropping to a two-year low, and it is now trading at a level first reached in 1998. This tells us that price action hasn't added a single penny in the past two decades.

MS Long-Term Chart (1993 – 2019)

Long-term technical chart showing the share price performance of Morgan Stanley (MS)
TradingView.com 

The company came public at a split-adjusted $6.64 in February 1992 and ground sideways into early 1995, bouncing along the IPO opening print. It then turned sharply higher, entering a strong uptrend that stalled at $40 in 1998 during the Asian Contagion. A 1999 recovery wave hit new highs, ahead a final buying surge that ended in the low $90s in the third quarter of 2000. The subsequent decline relinquished more than 70% of the stock's value into October 2002's low at $23.91.

A proportional retracement ended above $50 in 2004, yielding sideways action into a 2006 rally that ended at the .786 Fibonacci bear market retracement level in 2007. It sold off into the second half of 2008 and then collapsed with world markets, finding support in October within seven cents of the 1993 public offering. That low print finally ended the eight-year downtrend, marking a historic buying opportunity, ahead of a bounce that ran out of steam in the mid-$30s in 2010.

The stock posted higher lows in 2011 and 2012, finally turning higher in an uptick that stalled five points above the 2010 high in 2015. A third higher low in 2016 coaxed fresh buyers off the sidelines, yielding a modest rally that mounted 2015 resistance after the presidential election. The subsequent advance failed to ease long-term technical damage, stalling at the .618 retracement of the eight-year downtrend in March 2018, while the subsequent decline pierced the 50-month exponential moving average (EMA) in December 2018.

The monthly stochastics oscillator entered a sell cycle in March 2018, reaching the oversold level in June. Continued selling pressure dropped the indicator to the most extreme reading in the stock's history in June, while a bullish crossover into 2019 set off a fresh buy cycle that predicts six to nine months of relative strength. However, this morning's sell-off has dropped the stock back to 50-month EMA support, setting up a critical test of available buying power.

MS Short-Term Chart (2016 – 2019)

Short-term technical chart showing the share price performance of Morgan Stanley (MS)
TradingView.com

A Fibonacci grid stretched across the uptrend that started in 2016 shows the 2018 downturn pausing at the .883 retracement level in October, ahead of a breakdown that ended within 77 cents of the .618 retracement level in December. The bounce into January reached new resistance this week, ahead of this morning's intense sell-the-news reaction. Meanwhile, the 50-day and 50-month EMAs have aligned near $42, raising the odds that bulls will make a stand in coming sessions. Even so, the .618 retracement level looks like the key inflection point in this equation, with a breakdown likely to generate a quick trip into the $20s.

The on-balance volume (OBV) accumulation indicator also fell to a two-year low in December, signaling an aggressive exodus of retail and institutional capital. January buying pressure has triggered a minor bounce, but it will now take months of accumulation to build fresh sponsorship. Bearish quarterly metrics could make that task more difficult, with the fresh spike in bearish sentiment keeping capital on the sidelines.

The Bottom Line

Morgan Stanley stock is selling off after missing fourth quarter estimates, but strong support in the low $40s should hold in the coming weeks.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.