Trading the Traders, 4 Trades for Morgan Stanley: Bonus Idea

• Posted by Greg Harmon
• on October 24th, 2016

Here is your Bonus Idea with links to the full Top Ten:

Morgan Stanley, $MS, completed a move lower with its second deep draw down in February. That was followed by a slow trending channel higher through June. It dropped again following the Brexit vote at the end of June, below the channel to a lower low. But the uptrend was not over. In fact from that lower low it has now made two legs higher to get back to the January dropping off point.

It consolidated there for almost 6 weeks before a renewed push higher last week. Friday’s strong Marubozu candle sealed the deal for a third leg higher. That would give a target to 35.50, at the December dropping off point. The RSI is rising in the bullish zone and the MACD is rising and bullish, both supporting a move higher.

The Bollinger Bands® are opening to the upside to allow a move higher too. There is resistance at 35.50 and then 37.70 followed by 40 and 41. Support lower comes at 32.35 and 330.85 followed by 29.35. Short interest is low at 1.2%. The company pays a dividend and the stock trades ex-dividend on the 27th.

The October 28 Expiry options chain shows largest open interest at the 33 Call Strike. In the regular November options show the largest open interest at the 32 Call Strike with big open interest at the 33 Call and 31 Put as well. Even in January options the open interest is biggest below the current price and it is very large. Options traders do not expect much out of this stock.

Morgan Stanley, Ticker: $MS

Trade Idea 1: Buy the stock now (over 32.35) with a stop at 31.30.

Trade Idea 2: Buy the stock now and add a November 33/31 Put Spread (50 cents) also selling the November 35 Covered Calls (20 cents).

Trade Idea 3: Buy the November 34/35 Call Spread and sell the November 30 Put (20 cents).

Trade Idea 4: Buy the December 31/35 Bullish Risk Reversal (free).

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After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which heading into the last week before the election sees equity markets looking stable long term and mixed in the short run with the QQQ leading and the SPY falling.

Elsewhere look for Gold to continue to press higher short term while Crude Oil continues to show its strength. The US Dollar Index is also strong moving higher while US Treasuries are bouncing short term in their downtrend. The Shanghai Composite continues to drift higher while Emerging Markets mark time in consolidation.

Volatility looks to remain subdued and falling, adding a tailwind to the equity index ETF’s SPY, IWM and QQQ. They are mixed short term though with the QQQ moving higher the IWM flat and the SPY at risk for more downside. Use this information as you prepare for the coming week and trad’em well.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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