Morgan Stanley (MS), the diversified investment banking giant, reported better-than-expected earnings before the opening bell on Thursday, Jan. 18. Analysts expected soft earnings from sales and trading activities. This put the focus on growth in the firm's wealth management services, which did not disappoint.
The stock closed Wednesday at $55.35, up 5.5% year to date and in bull market territory at 38.3% above its 52-week low of $40.06 set on March 27, 2017. The stock set its 52-week intraday high of $55.98 on Jan. 16, 2018. Morgan Stanley shares are outperforming the S&P 500's gain of 4.8% year to date. Over the longer term, Morgan Stanley set its all-time intraday high of $91.97 in October 2000 and set a secondary high of $76.04 in June 2007. After the crash of 2008, the stock traded as low as $6.71, surviving the meltdown. (See also: How Morgan Stanley Makes Its Money.)
The daily chart for Morgan Stanley
Morgan Stanley has been above a "golden cross" since Aug. 25, 2016, when the stock closed at $31.16. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average and indicates that higher prices lie ahead. The stock has been above its 50-day simple moving average since Nov. 28, when the average was $49.22. The 200-day simple moving average was last tested on Sept. 8, when the average was $44.12. The 50-day and 200-day simple moving averages are now $51.63 and $47.07, respectively.
The horizontal lines show that the stock is well above its monthly, quarterly, semiannual and annual value levels of $52.95, $49.48, $48.52 and $39.43, respectively, with this week's risky level at $56.98.
The weekly chart for Morgan Stanley
The weekly chart for Morgan Stanley is positive but overbought, with the stock above its five-week modified moving average of $53.02. The stock is well above its 200-week simple moving average at $36.74, which is also the "reversion to the mean," last tested during the week of Aug. 19, 2016, when the average was $29.92. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week at 85.34, trending above the overbought threshold of 80.00.
The horizontal lines on the chart above are the Fibonacci retracement levels of the decline from $91.97 in September 2000 to $6.71 in October 2008. The stock has been above its 50% retracement of $49.34 since the week of Dec. 1. There is upside potential to the 61.8% retracement of $59.40.
Given these charts and analysis, my strategy is to buy Morgan Stanley shares on weakness to my monthly and quarterly value levels of $52.95 and $49.48, respectively, and to reduce holdings on strength to my weekly risky level of $56.98. (For additional reading, check out: Morgan Stanley Announces Launch of Morgan Stanley Access Investing.)