Morgan Stanley (MS) treads water, may drown

Equity markets closed with slight losses today (April 30, 2012). The S&P500 settled down 0.4 percent, the NASDAQ declined 0.7% and the DJIA edged down a marginal 0.1%.

Morgan Stanley (MS) shares have recently displayed interesting price action, with price compressing in a support zone and setting up for increased volatility. Compression at notable support is in evidence on charts with daily bars, hourly bars, and five-minute bars.

MS, 4 y 1d

On the four year chart above, daily bars representing the last several days all appear supported by a nine-month price channel. Ordinarily, a bounce from a price channel would portend further bullish price action; however, Morgan Stanley’s consolidation just above support increases the probability of a bearish pierce.

MS, 180 d 1h

The same nine-month price channel described above is rendered in greater detail on the hourly bars chart of MS. This vantage point confirms that price action is receiving little boost from the support line of the price channel. The hourly chart also shows that the last week of price action has MS bumping against horizontal resistance at $17.3, a price level that had been a support level from mid-January through April 23^rd.

MS, 20 d 5m

On the five-minute bars chart, MS remains somewhat defined by a modestly downward-sloping, 2-week price channel – hardly the bullish behaviour that one might expect for a stock at the support level of a 9-month price channel.  Horizontal support at $16.77 has held for the past 6 sessions.

In sum, Morgan Stanley has consolidated at support from a 9-month price channel. A volatility contraction, particularly at such an important support level, often begets pronounced volatility expansion. A bearish move would not be unexpected given the past week’s weakness, but a delayed rally may be in the cards instead.