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Fan Yang

Morgan Stanley (MS) Retreats from Falling Resistance after Earnings Report

Bank shares have been recovering since late December, and Morgan Stanley $MS was one of them. It rebounded from a 2018 low of $36.78 to about $45 on Wednesday (1/16). However, after the session closed, Morgan Stanley released its Q4 earnings report, and it disappointed. 

Here's a  summary from CNBC:

  • The bank posted profit of 80 cents per share, below the 89 cent average estimate of analysts surveyed by Refinitiv. Companywide revenue declined 10 percent to $8.55 billion, compared with the $9.3 billion estimate.
  • Morgan Stanley's two biggest businesses, Wall Street trading and advisory and wealth management, suffered revenue declines amid a difficult market environment last year.
  • The firm posted the weakest fixed-income trading results of its peers, plunging 30 percent to $564 million, compared with the $806 million estimate.

The bank posted profit of 80 cents per share, below the 89 cent average estimate of analysts surveyed by Refinitiv. Companywide revenue declined 10 percent to $8.55 billion, compared with the $9.3 billion estimate.

The firm's institutional securities business, which contains its trading and advisory units, posted $3.84 billion in revenue, nearly $500 million below the $4.33 billion estimate. The bank's wealth management division posted $4.14 billion in revenue, compared with the $4.45 billion estimate. Only the bank's smallest division, investment management, exceeded estimates, producing $684 million in revenue, versus the $656.7 million estimate.

"This is not Morgan Stanley's finest hour," said Octavio Marenzi, CEO of capital markets consultancy Opimas. "In wealth management, Morgan Stanley's revenues were down 6%, while competing firms were able to eke out single-digit growth. In equities trading, Morgan Stanley was even further behind the competition, with flat revenues where other investment banks were able to benefit from market volatility and show double-digit growth." (CNBC)

Apparently, Morgan Stanley was like the New York Knicks of the big bank names in Q4 2018. While Goldman Sachs $GS and Bank of America's $BAC earnings beat estimates, $MS missed them. 

Let's take a look at the price reaction:

MS Daily Chart

(click to enlarge)

Pulling Back from Bullish Attempt:
- MS rallied sharply during the 1/16 session, pulled up by its peers $GS and $BAC.
- However, the market didn't simply truck through a key resistance around $45. There was a falling trendline here.
- Then it opened on the 1/17 session with a gap down, completely paring the upwards opening gap of the 1/16 session.
- I think if price holds under $44, there is downside pressure.
- On the other hand, if price can hold above $40, there is still upwards pressure. 
- So let's monitor these two levels for now.
Breakout Scenario:
- Who knows how long the current market recovery will last. 
- Let's say it extends into February, past the current earnings season.
- Then, we might even see MS extend its recovery despite it missing earnings estimates.
- In this scenario, which would involve a bullish breakout above $45, MS would open up the $48-$50 area. 
- The 200-day simple moving average (SMA) is around $48, and there is a key support/resistance pivot around $50. 
Bearish Scenario:
- If price holds under $44 and closes under $40, we might have a bearish continuation swing at hand.
- In this scenario, price has a chance to retest the 2018-low around $36.75.
- Below that, there is downside towards the $31-$33.60 pivot area. 

MS Weekly Chart

(click to enlarge)

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