Shares of financial stocks such as Morgan Stanley (NYSE: MS ) have displayed both absolute and relative strength since the middle part of 2016. Although much like the broader stock market, MS stock has been in consolidation mode over the past few weeks, the stock looks primed for a breakout higher.
Financial companies such as investment banks and lenders are a critical part of the U.S. economy and thus also important for the U.S. stock market. Smart money investors often focus on the financial sector of the S&P 500 to gauge various risk-on or risk-off measurements. Credit ratings and bond prices of such institutions are also often traded and watched for signals to the broader economic picture.
While one sector or stock alone does not tell a clear story about the economy, watching these stocks and bonds has helped me tremendously navigate the markets over the years.
Morgan Stanley Stock Charts
Click to Enlarge
Moving averages legend: red - 200 week, blue - 100 week, yellow - 50 week
Looking at the multiyear chart of MS stock we see that in the summer of 2016 it began to shift its structure from bearish and neutral to bullish. The stock then started to climb, pushing above its longer-dated moving averages by late 2017 and holding above them ever since. The up-trend has a well-defined line or support (lower black parallel) where trend followers can define their risk.
In February the stock bounced off the lower end of its trading range and now looks poised to travel toward the upper end of this range.
At the bottom of the chart I plotted a so called 'ratio' or 'relative chart' where I plotted MS stock versus the S&P 500. Note that this stock has showed relative strength since mid 2016 versus the broader market.
Click to Enlarge
Moving averages legend: red - 200 day, blue - 100 day, yellow - 50 day
On the daily chart, we see that since last September, MS stock has more or less found support at its blue 100-day simple moving average. This most recently happened at the February lows and the stock since made a marginal higher low last week. All of this is pressing the stock against a diagonal resistance line that currently comes in around the $57 mark.
A push and hold above this resistance line could open upside toward the $60 mark as a next round profit target.
Check out Anthony Mirhaydari's Daily Market Outlook for March 8.
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