Morgan Stanley Is Pointed Up, With Mixed Technical Signals

 | Aug 08, 2017 | 1:18 PM EDT
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It has taken three months of inch by inch gains and periodic pullbacks from the May lows, but Morgan Stanley (MS) has broken out over its February/March highs. The new highs make this an appropriate time to look at the charts and indicators.

Like many stocks I look at from day to day, the charts and indicators of MS have bullish and bearish signals. Let's try to make sense of the crosscurrents and present a strategy that balances the potential rewards with the risks.

In this daily bar chart of MS, below, we can see how prices traded sideways from December. Strength in late July finally tipped the market to the upside. The share price of MS is above the rising 50-day and the rising 200-day moving average line. These two math driven indicators are bullish. The pattern of volume and the On-Balance-Volume (OBV) line are not giving us a bullish signal as volume looks like it has declined from May and the OBV line looks pretty flat the past four months. The price of MS can go up without aggressive buying but having it gives us more confidence in participating in a rally. In the lower panel is the 12-day momentum study which shows lower momentum highs from June to August versus higher price highs. This is a bearish divergence and tells us that the pace of the advance is slowing. A slowing advance is not a sell signal but a warning that something may be changing.

In this weekly chart of MS, below, we can see that prices are above the rising 40-week moving average line. A decline or dip in May towards the 40-week line looks like it was a buying opportunity. The weekly OBV line has improved in the past few weeks but it is below its February high. The OBV line could climb to a new high to confirm the price gains but for now this is a bearish divergence. The weekly Moving Average Convergence Divergence (MACD) oscillator has crossed to the upside for a fresh outright go long signal.

This Point and Figure chart of MS, below, ignores volume and is bullish. You can see both the upside breakout at $47.12 and the potential price objective of $52.19. 

Bottom line -- MS is in an uptrend but not all the technical indicators are bullish. Do we wait for clearer signals? NO. Why? Because if we waited for volume to confirm in all the charts we look at, we would not have that many recommendations. Volume is important but price is more important. Continue to trade MS from the long side but traders could have a close below $46 as their risk point and investors should use a close below $43.

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