MS, Morgan Stanley, brilliant idea–terrible execution!

ms dec 19 2011

This chart is from our December 19 , 2011 blog. It shows the two possible outcomes that could reasonable be expected at that time. Before that we had tried to buy the stock but had chosen a level that was just a little bit too low and was never reached. Here is what happened;

ms may 9

As you can see,the stock went exactly to one of the two targets, the preferred one given the valuation, at just over $21. But that does nothing for you if you are not in the game. Being reckless is not good but being too cautious is not very helpful either. So where now?

ms b may 8 2012

The best guess at this point in time is hat the stock is making a very large A-B-C correction from the $70 high. In this case the structure should unfold as a 5-3-5 A-B-C. Very often, but certainly not always, both legs will tend towards vector equality which essentially means that the longer it takes the smaller the amplitude. The purple arrows give a rough idea how this might play out. It targets about $8 or so and should take another 6 months to complete. Rumblings that Moody is contemplating a credit downgrade, by no less that 3 notches, may precipitate the process. As always , time will tell but we missed an easy double.