(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Morgan Stanley's (MS) stock has jumped by nearly 26% over the past 52 weeks and has the potential to rise by another 25% in 2018. Shares of the investment bank are nearing a technical breakout, with the stock currently trading around $55. The breakout could come after the company reports its fourth-quarter results for 2017 on January 18, before the market opens.
According to Ycharts, analysts are looking for earnings to have fallen by about 3.5% in the quarter, versus the same period a year ago to $0.78, while revenue is expected to have risen by approximately 2.5% to $9.25 billion. Investors have taken a positive view on the stock so far in 2018, with the stock up about 5%.
A Rise to $69
A technical analysis of the chart suggests shares could rise by nearly 25% to about $69 should a breakout occur. The stock is currently hovering around a resistance level near $55.25. A rise above $56 is a good sign the stock could be on its way higher.
The chart also shows that the current resistance at $55.25 finds its roots back to the year 2008 when the stock was falling at a rapid pace due to the financial crisis. Because asset prices were falling so quickly during that time, there is a pocket between $55 and $69 with little to no resistance, giving the stock a clear path higher.
A Consolidation Period
The relative strength index (RSI) reading is currently indicating the stock could be overbought at current levels, with a reading of 72. A reading above 70 means the stock has become overextended, but as the chart shows, that reading has surged in the past to nearly 80. It could also be a sign that on a breakout, the stock is likely to consolidate around $56, giving the RSI a chance to move lower.
A breakout would need a surge in volume, confirming the rise, and volume levels have remained relatively constant. This coming week's earnings report could trigger that breakout and a surging volume level would help to further support the strength.
It is worth noting that should the shares not be able to break out because earnings disappoint, it could be a drag on the stock, sending it about 8% lower to support at $50.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.