With this week’s European Central Bank meeting and the U.S. November jobs report, followed by the FOMC interest rate decision in two weeks on Dec. 16, rate-sensitive stocks like financials will be in major focus and could see a significant move in one direction or another.
From a technical perspective, banking and broker stocks such as Morgan Stanley (NYSE:MS) look good but not amazing. But if we combine the technical picture with the potentially rising rate environment (however small it might be), the bull case for MS stock becomes much more compelling.
Over the past few years, Morgan Stanley has morphed into much more a classical wealth manager than just a broker and trader. This transformation has also arguably made MS stock more interest rate sensitive to the shorter end of the yield curve.
Should the Fed begin to slowly raise rates at its Dec. 16 meeting, then the shorter end of the yield curve could see a further increase. In the current zero percent interest rate environment, coming off this zero bound on the lower end of the yield curve could allow wealth managers such as Morgan Stanley to charge a small fee to clients, thus boosting its bottom line to some extent.
MS Stock Charts
Moving over to the charts, from the longer-term perspective we see that in late 2014 MS stock broke past a crucial longer-term area of resistance as marked by the blue box. After extending higher into July, the broad market pullback in August/September pushed the stock back below the blue band.
The October/November rally then pushed the stock back higher into this blue band of resistance, where the stock now sits in a fairly neutral manner. The aforementioned data points this week, followed by the Dec. 16 FOMC meeting, likely will decide whether the stock wants to find this blue zone as resistance and thus push lower, or if it wants to push back higher above the blue box and rally toward the July highs and beyond.
On the daily chart, we see that the price action since the August and early October lows has formed a double bottom. A higher low in late October then was enough to propel MS stock past the black diagonal line of resistance. This line now also coincides with the yellow 50-day simple moving average, which last week held as support. On the upside, both the blue 100-day and the red 200-day moving averages are serving as resistance and upside attraction areas.
Active traders and investors now have two choices:
- Leg into an initial long position in MS stock at current levels, using the $33 area as an initial stop-loss area on a daily closing basis.
- Wait until either Friday’s November jobs report or the Dec. 16 FOMC meeting have passed. Should the stock rally after either of those events, buy Morgan Stanley stock for a move back to the summer highs near $40-$41.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, Serge Berger did not hold a position in any of the aforementioned securities.
