Morgan Stanley's Must-Know Support Levels After E*Trade Acquisition

Morgan Stanley declines after agreeing to acquire E*Trade. Here's how to trade Morgan Stanley shares from here.
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Shares of Morgan Stanley  (MS) - Get Report were down about 4% in midday trading on Thursday, as the firm announced it would acquire E*Trade  (ETFC) - Get Report for $13 billion.

The move follows Charles Schwab  (SCHW) - Get Report gobbling up TD Ameritrade  (AMTD) - Get Report after the former slashed its commission rate to $0 on many trades, forcing the industry to do the same.

The online retail brokerage industry has gone through huge changes over the past few quarters, as trade-commission volatility and M&A have played a huge role in some big moves. With Morgan Stanley swooping in, it’s just the latest development in a continually evolving industry.

Given the news, it’s no surprise that Real Money named Morgan Stanley its Stock of the Day.

Because the deal is all stock, trading Morgan Stanley becomes a bit more complicated. As of the prior close, the deal values E*Trade at $58.74 per share. That will fluctuate over time, but for now, let’s look at the charts.

Trading Morgan Stanley

Daily chart of Morgan Stanley. 

Daily chart of Morgan Stanley. 

Few seem to remember that just last month, Morgan Stanley reported blowout earnings. The company crushed expectations as its operations continue to hum along nicely.

While it gapped to new highs on the news, shares have been unable to take out that two-day post-earnings high. Those highs come into play near $57, a level that Morgan Stanley has been approaching this month. However, each time shares surpass $56 they run out of gas.

The stock already filled its earnings gap earlier this month, and as it loses the 20-day moving average investors are wondering if lower price could be in store.

I really like Morgan Stanley’s business and the banking industry reported impressive earnings last month. But the charts lack momentum right now. That’s clear as the banks are struggling to make new highs even though the market has continued to push higher. It’s not a bad thing necessarily, just an observation. It also has the potential to put lower prices on the table.

Those who want to buy Morgan Stanley may look to do so near $52.75. This area was pre-earnings resistance and post-earnings support, a good sign for bulls. Further, the 50-day moving average is near this mark, as is uptrend support (blue line). Put it all together and it’s a good combination for dip buyers.

Below this area and $50 could be on the table. On the upside, see if Morgan Stanley can reclaim the 20-day moving average, a level that rejected the stock on Thursday. Above the 20-day puts $56-plus back on the table.