Morgan Stanley (MS) is the 'Stock of the Day' at Real Money on Thursday. The big news today is that MS is buying E*Trade (ETFC) in an all stock purchase valued at $13 billion that is expected to close in Q4.
Let's check the charts and technical indicators of MS to see how traders and investors are reacting to the news and what chart points we need to be aware of.
In this daily bar chart of MS, below, we can see that prices have made a recovery rally with the strength in the broad market from early October. MS broke out above the highs of April and May in November and continued higher into January with trading volume getting very heavy at the high.
Prices are above the rising 50-day moving average line and the rising 200-day moving average line. Back in early November, we can see that the 50-day average line crossed above the slower-to-react 200-day moving average line for what is commonly called a golden cross. This mechanical buy signal can be effective with long-trending markets. So far in February MS has not made a new high for the move up.
The daily On-Balance-Volume (OBV) line moved up from early October to confirm the price gains with its message of aggressive buying but in recent weeks the OBV line has become stalled.
The 12-day price momentum study in the lower panel of the chart shows lower highs from October, telling us that the rate of acceleration in price has been slowing and creating a bearish divergence when compared to the price action.
In this weekly bar chart of MS, below, see that prices have (so far) stopped short of the prior peak in early 2018 around the $58-$60 area. Prices are above the rising 40-week moving average line but this is a lagging indicator.
The weekly OBV line has been moving higher from December 2018 but like the daily chart the line looks like it is stalling.
The 12-week price momentum study shows that the pace of the advance has slowed since early January.
In this daily Point and Figure chart of MS, below, we can see that prices are in an uptrend with a potential price target in the $64-$65 area. The chart also shows that a trade at $51.53 could turn the chart a bit lower.
Bottom line strategy: Analysts will be diving into the books of E*Trade and some may be looking to see if a higher bid may come from someone else. Who knows? What I suspect is that the stock price of MS will likely trade in a relatively tight range. To me the big risk will be the broad market. A serious decline in the broad market in H1 could hit MS and ETFC.
