[Post Summary]And his right hand embraces me.
—Song of Solomon
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Did you know Morgan Stanley (NYSE:MS) once was part of JP Morgan, only becoming a separate company following the Glass-Steagall Act of 1933?
Exxon and Mobil once were one. They belonged to a company called Standard Oil, and they're back together again. Might finance reunite, too?
The Glass-Steagall Act was repealed in 1999. So, without the law separating commercial and investment banking why wouldn't these two White Shoe Titans get back together again if push came to shove? Lots of pushin' and shovin' these days. Just wondering.
Competent technical analysis offers valuable insights to any investor whose primary objective in owning a stock is not about finding an emotionally appealing lover, but rather a prospective money-maker. It knows nothing of mergers. But shotgun weddings? Maybe.
Technical analysis helps reveal a stock's reasonable probabilities, given what is "known" and what already has been demonstrated. Whatever fundamental matters might be thought to be affecting a stock's price, there are several ways one can assess how these are impacting investor behavior.
Generally speaking, fundamental factors play no part in my analysis. Yet considering headwinds financials are facing and conditions conducive to asset grabs, chances are pressure will build for MS and JPM to get back together again. On the way to the altar one of these two is likely to be brought to its knees.
Will it be Morgan Stanley?
First point of interest is the fact Morgan Stanley last year was taken down to the range where it last traded in 1994. Over the next couple years the bulk of major stock market indexes might do the same. This means most stocks are likely to follow the lead of Morgan Stanley.
The basis for this estimation lies in Elliott Wave-related considerations. Obviously, nothing is set in stone. Yet the technical case this analytical methodology helps make is rather compelling. Thus, there's reason to be alert to the possibility the broad market could follow the path blazed by the likes of Morgan Stanley.
Judging by support/resistance lines you see drawn above, there appears a good bit of upside room for Morgan Stanley to rise. However, caution is well-advised given the current configuration of Morgan Stanley's weekly RSI. Just look back to late-2001, early-2002 and you should get a sense MS might struggle to rise over months ahead.
Volume positively developed as Morgan Stanley formed bottom last year. Its diminishing upon setting a new low in October (relative to September) reveals selling exhaustion. All the more was this demonstrated in November.
Yet look what's missing. Do you see any high-volume advance countering Morgan Stanley's September-October thrashing? It seems intuitive that, if some [inside] interest thought the stock's throttling last year was a case of throwing the baby out with the bath water, MS would have seen a high-volume lift off bottom rivaling volume registered during last year's steep sell-off. However, this has not happened. Thus, it is assumed Morgan Stanley's rally since November '08 is a technical affair — trader-induced — lacking staying power.
(You can look back to NYSE and NASDAQ volume registered during the market's 2000-2002 decline, observe how volume during the 2003-2007 recovery never once rivaled it, and get a sense of the risks ahead. Namely, the market's 2000-2002 decline likely is but the beginning of the end, much as was the case in Morgan Stanley.)
MS daily RSI advises the same caution as weekly RSI. In the grand scheme of Morgan Stanley's decline since 2007 daily RSI currently is pushing the top side of its range.
Relative to the price (< $10) from which MS has risen, there is not a lot of upside potential remaining (particularly in percentage terms). If I owned Morgan Stanley, I would be waiting for a trade north of $30 before bailing out. As you can see from the Elliott Wave count I have indicated above, MS is forming an A-B-C corrective wave from its 2007 peak. Wave A completed last October and wave B presently is forming.
Could a prospective wave C [down ... hard] coincide with a Morgan Stanley — JP Morgan reunion sometime over the next few years? Technically speaking, a further, devastating decline in MS appears rather likely. The question is whether its mangy half brother will be in any condition to pick up the pieces.
—Tom Chechatka
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