The earnings season in the U.S. is gaining speed, and Morgan Stanley is the next financial institution in line to report quarterly earnings for the three months to December 2020. The bank is set to do so tomorrow before the market open. JPMorgan Chase kicked-off the cycle last week.
Morgan Stanley's share price is currently consolidating just below a historically significant resistance level, which was last reached in June of 2007. This happened right before the debt bubble burst, resulting in the infamous credit crunch. As it happens, the price action is once again probing this crucial barrier just as Morgan Stanley is about to deliver its Q4 figures; an event that is bound to garner traders` interest, resulting in volatility upsurges. And all of this is taking place during a week that already looks poised to be quite eventful.
Morgan Stanley's stock price currently finds itself at a make-it-or-break-it point, and the expected increase in underlying volatility over the next several days could potentially jolt the strength of the broader bullish trend. Namely, the share price could very likely recoil from the resistance, and go on to establish a minor bearish correction before the uptrend can be resumed. The emerging setup can be utilised by bears and bulls alike, just in different ways.
Meanwhile, the consensus forecasts expect Morgan Stanley to report Earnings Per Share of $1.29. This exceeds slightly the $1.20 EPS that were delivered for the same period a year prior. Overall, if the bank's final performance meets the initial projections, this would likely be received as a success by traders and investors alike, given the persisting coronavirus fallout weighing down on the financial industry.
1. Long-Term Outlook:
The historically significant resistance in question is positioned at the 77.00 level, as shown on the daily chart below. Notice that the price action has been consolidating just below the resistance for the past several trading days, but has been unable to break out above it.
This behaviour could be exhibitive of mounting bearish pressure as contrarian traders weigh in on a possible correction; however, this may not necessarily be the sole explanation of the price action's recent demeanour. The momentary range could result from market bulls waiting for the release of the earnings report before they resume inflating the bullish sentiment by adding to their buying orders.
Morgan Stanley 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
The Ichimoku Cloud indicator highlights the very robust bullish bias in the market, which has been rising steadily over the past several weeks. Part of this is due to traders' new year's optimism, the effect of which we covered in our article on the impact of market seasonality.
The ADX indicator, too, represents the strength of the existing uptrend. As can be seen, the indicator crossed above the 25-point threshold on the 17th of November and has been strengthening ever since. Even though this reading alone does not necessarily preclude the possibility for the emergence of at least a minor bearish correction, the ostensibly bullish sentiment favours the continuation of the uptrend's development in the longer-term.
Speaking of the Ichimoku Cloud indicator, notice that its baseline (serving as a floating support in red) is currently converging towards the psychologically significant support at 70.00. At present, this level seems like the most plausible target for a potential correction, depending on the pullback's strength.
2. Short-Term Outlook:
As can be seen on the 4H chart below, the price action has been advancing within the boundaries of a regression channel. It closed below the channel's middle line yesterday, just as it (the middle line) is nearing the historic resistance at 77.00. This behaviour could catalyse the next directional swing of the price action. In other words, if it remains concentrated in the lower portion of the channel, this would be likelier to result in a bearish correction.
A buying volume climax was already reached in early-January, which is inlined with the primary anticipations for a new dropdown. Meanwhile, the MACD indicator demonstrates that the underlying momentum has already started to turn bearish (bearish crossover), which could prompt more market bears to action.
Morgan Stanley 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
Depending on the scope of the bearish commitment in the market, a potential correction could bottom out in one of three places. It could do so near the lower boundary of the regression channel; near the aforementioned psychological support at 70.00; or the 23.6 per cent Fibonacci retracement level at 65.17, which also has such psychological significance.
These scenarios outline the boundaries of three testing areas, as shown on the hourly chart below. Depending on how the market behaves next, the bears could utilise contrarian strategies to catch the anticipated dropdown in the short-run (it could reach either of the three areas' lower limits). Of course, that is if the market does not immediately resume heading north, bolstered by heightened optimism for tomorrow's earnings report.
In contrast, more risk-averse bulls could wait for the price action to bottom out either at 72.80, 70, or 65.17, before they utilise trend-continuation strategies. Essentially, they would be looking for an opportunity to catch the subsequent bullish rebound.
Morgan Stanley 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
3. Concluding Remarks:
The latest market momentum is ostensibly bearish, as highlighted by the MACD indicator on the hourly chart below. Meanwhile, the price action remains concentrated between the 50-day M.A. (in green) and the 100-day M.A. (in blue). Both of these factors seem to be inlined with the expectations for a new bearish correction in the near future.
However, traders should be careful with the precision of their orders. Firstly, the above-mentioned expectations for an upsurge in volatility could very likely lead to adverse fluctuations, resulting in sub-optimal entries. This could be made worse by potential disparities in liquidity around the time of the earnings report's release.
Secondly, the anticipated pullback could be much smaller than some might expect. The 100-day M.A. is currently converging towards the 72.80 support, which could on its own prevent any deeper dives.
Profit & Loss
Journal Entries
Feb 3, 2021 - Entry 1
Morgan Stanley 45 Min Price Chart. Image source: Trendsharks ©, created with TradingView.com
- Overall, the behaviour of the price action met the expectations of the analysis. Despite one fakeout above the historic resistance following the release of Morgan Stanley's Q4 earnings, the share price started falling.
- Notice that, however, the bearish correction did not reach the final target that was the 23.6 per cent Fibonacci. Yesterday's bullish rebound signals that the correction likely bottomed out, which is why the short position can now be closed.
- Contrarian traders need to be especially precise because they are essentially betting against an established trend. Hence, even the subtlest pieces of evidence pointing to a likely termination of an underlying correction should be taken as a potential threat to a contrarian trader's positions.
Disclaimer: Your capital is at risk! Trading and investing on the financial markets carries a significant risk of loss. Each material, shown on this website, is provided for educational purposes only. A perfect, 100% accurate method of analysis does not exist. If you make a decision to trade or invest, based on the information from this website, you will be doing it at your own risk. Under no circumstances is Trendsharks responsible for any capital losses or damages you might suffer, while using the company’s products and services. For more information read our Terms & Conditions and Risk Disclaimer.
Over the past few weeks, the USD has lost nearly 800 pips against the JPY, driven by Japan's shift away from decades of negative interest rates. With the Bank of Japan raising rates for the second time in a row, investors are adjusting their positions to [...]
Despite its volatility, Silver remains in an uptrend. While not as dynamic as Gold, XAG often mirrors XAU’s movements. A Multiple Top has formed around $32.50, and history shows that the more a level is tested, the weaker it becomes, increasing the likelihood of a [...]
A combination of factors, including Trump-era tariffs, the emergence of DeepSeek, and a slowdown in GDP growth, has contributed to the recent pullback in the US30 from its record highs. From a technical standpoint, a Double Top pattern has formed around the [...]
Over the past month, Silver has experienced an impressive 13% surge, marking a strong bullish trend. Despite notable volatility and multiple pullbacks, the overall momentum remains firmly to the upside. This strength is further validated by the Golden Cross, a historically reliable [...]
The Swiss Stock Market has been on a remarkable rally, surging over 15% between December and January. At times, the price action resembled a near-vertical ascent. However, following the announcement of Trump’s tariffs over the weekend, Monday’s trading session opened with a [...]
Between October and January, GBPUSD experienced a significant decline, dropping by approximately 1300 pips. However, we now observe signs of a potential trend reversal. Over the past few weeks, the pair has rebounded by more than 400 pips, shifting momentum toward a [...]
For the past 1 month, the UK100 saw a fantastic 600 point rally! The occasional corrections only attracted more buyers, which is healthy for the current up trend and the RSI currently exhibits elevated demand. A 130 point correction started last week on Friday, dipped below the [...]
Over the past two weeks, Japan’s leading stock index surged 2,000 points, reflecting strong bullish momentum. However, this week saw a sharp sell-off, erasing nearly all gains since mid-January. Despite this drop, the decline stalled at the 61.8% Fibonacci retracement, a key [...]
There is a clear shift in the momentum in the Oil market, with the commodity dropping with nearly 10% for the past 2 weeks. The Death Cross, a classic sell signal, is indicating that sellers are indeed in control and we are lookin now at a strong [...]
The 350 pip rally for the past 2 weeks seems like a trend reversal for EURUSD, with buyers back in control. The strong bullish momentum is also confirmed by the Golden Cross, a historic buy signal. Corrections are healthy for the trend and we currently looking at [...]
For the past 2 weeks GBPUSD went up with 400 pips and this is why we believe we might be looking at a trend reversal. The strong bullish momentum is confirmed by the Golden Cross, a classic buy signal, which supports the hypothesis that [...]
The Death Cross formation in USDJPY signals a robust downward momentum, with the USD depreciating by 300 pips over recent weeks. Further declines exceeding 300 pips are anticipated, potentially reaching the 152.00 level. Despite several corrective pullbacks, the price has been unable to surpass the [...]
Following the formation of a Double Top pattern at the 21,930 level last Friday, the NASDAQ has experienced a significant decline, plummeting by nearly 800 points. This downturn has been primarily driven by unfavorable manufacturing data emerging from China, alongside the Bank of Japan's interest rate hike on Friday. The market reaction closely resembles the [...]
GOLD's uptrend has regained strength, with several factors supporting further gains. The RSI bounced from oversold levels and now stands at 65, signaling growing demand and increasing buying volume. Additionally, the appearance of a [...]
For the past few months, USDJPY gained 2100 pips! Then, about 10 days ago the USD started dropping and so far corrected with 300 pips, dropping down to 155.00. A local Double Bottom got formed and this level also aligns with the important [...]
For the past week, the US100 has surged by over 1,000 points, signaling strong bullish momentum. The RSI stands at 69, indicating high demand and buyer dominance. A bullish Golden Cross pattern has emerged, confirming the upward trend. Despite a brief correction yesterday, with the index dipping to [...]
The Descending Triangle on the 4-hour chart, typically a bearish signal, failed to materialize this time. Instead, the Triple Bottom support at 92,000 held strong, driving significant buying volume. A Golden Cross—a classic bullish indicator—confirms strong [...]
After a 300-point correction from its December highs, the SP500 appears to be rebounding as bulls regain control. This recovery is supported by positive economic data, including strong NFP numbers, low unemployment, and CPI readings meeting expectations—all favorable for stocks. Additionally, the earnings season began yesterday with [...]
For several months, the EUR has been trending downward, losing hundreds of pips. While occasional corrections to the upside occur, bears remain in control. The strong downward momentum is highlighted by the Death Cross pattern, a classic sell signal. Yesterday, we observed another [...]
The Dollar remains strong, with buyers firmly in control since the Fed's December comments hinting at fewer 2025 rate cuts. This drove a 400-pip rally in USDCAD, now facing resistance near 1.4450 as early buyers take profit. Corrections are part of healthy trends, and the pair is testing support at [...]
Today is CPI day, and technical analysis often falters on major news days. Nevertheless, here's our take on the US Tech 100: we anticipate a potential drop of 800-1,000 points. December's Fed comments triggered a selloff, with bears dominating the index for weeks. The strong downward momentum aligns with [...]
