by Michael Tarsala
Technical Swing model manager Mike Arold is now shorting Morgan Stanley (MS) shares, and his rationale is simple, if not traditional.
“It’s purely a technical trade,” he says. “This stock led its group to the downside in April and May, then bounced from support around $13. Then after a period of consolidation, it broke down Monday from its rising-wedge pattern, so I shorted it. I went in at $13.50, with a stop at $14. My risk-reward on the stock heading to $11.50 is a 1-to-4 ratio.”
Arold has taken the occasional contrarian position, zigging when others are zagging to take advantage of extreme sentiment.
Morgan Stanley would certainly be considered a contrarian pick as a long; the bad news continues.
The investment bank’s debt was downgraded two notches by Moody’s last week, partly due to its exposure to Europe’s sovereign debt problems.
Goldman Sachs equity analysts came out negative on the stock this week, dropping MS shares to a “hold” from a “buy”; analysts are worried that the debt downgrade could hamper Morgan Stanley’s trading profits.
There also is the threat that investment clients could leave due to the debt downgrade, added analysts at International Strategy & Investment Group.
Morgan Stanley is now one of the only big banks trading at less than half its book value, or based on the assets on its balance sheet. Only Bank of America (BAC) is worse among the largest U.S. names.
Source: Stockcharts.com
But on this one, Arold isn’t going to fight the tape.
As the saying goes, the trend is your friend. And he thinks it will trend even lower.
