MS, Morgan Stanley update

ms dec 19 2011

till it stops working, we will keep monitoring this stock while it seems to be tracing out a triangle. This pattern, when it occurs in a sequence is always in the 4th wave position and , for that reason, announces as it were the end that is right around the corner. Typically after the triangle is complete the stock will move in a thrust a distance approximately equal to the size of the mouth of the triangle. After that, realizing that it has gone too far, it returns to the apex and , more often then not, to the highest point of the triangle. All of this with the reliability, almost, of the sun rising in the East.

So what can go wrong?  First of all just because it looks like a triangle it may not become one. If you look at GS the pattern is very similar but should it move a little lower the triangle idea will be negated. Apart from that a whole slew of other patterns could be developing, both up and down. To avoid the uncertainty you simple do nothing till the outcome is clear!  The triangle might not be a wave 4 in a downward sequence as it could be a wave a in an upward correction (see the light blue annotations). Thrust are furthermore famous for their speed, as the name suggests, so we do not recommend going short the stock at all. What we do recommend is to wait for the triangle to complete itself and also for the thrust to travel the “normal” distance and then buy the stock. That is at about $7 if all these expectations are met. The reward is a 100% return in a very short period of time.

I understand that the stock is trading at 0.4 times book and that if it were to trade at a p/e equal to the industry’s it should be worth about 5 as much. Perhaps.