It's Time to Sell Morgan Stanley


BALTIMORE (Stockpickr) -- This market just doesn't want to stay down. Momentum is clearly on the side of buyers right now.

But this still isn't a "dartboard market." By that, I mean that you can't pick stocks by throwing a dart at a board full of tickers. That may work during truly frothy bull markets, but stock picking still matters in this market.

Case in point, two thirds of Dow Jones Industrial Average components are down year-to-date. And of those, half are down 5% or more since the calendar flipped over to January. They're not just underperforming; they're underperforming by a factor of 10. If you hold on to "toxic stocks" in this environment, your performance is sure to suffer.

And Dow components are the least of your worries. A handful of other names (even big ones) look even more toxic right now. One of those is Morgan Stanley (MS).

Morgan Stanley

You don't have to be an expert technical analyst to figure out why shares of Morgan Stanley are starting to look bearish -- the setup in this toxic name is pretty straightforward. Shares of MS have been in a textbook uptrend since this past summer, but the most recent test of trend line support got violated, leaving the financial giant's stock below the channel this week.

That's not out of left field -- all trend lines eventually break sooner or later. And while MS' uptrending price action in the channel was a good reason to own shares for most of the last year, the break is a signal for the most risk-averse owners to start selling. Not surprisingly, most trading signals come in shades of gray that synch up with risk tolerance. For the less risk-averse, shares are still very close to trend line support right now; $29 is the last ditch stronghold for buyers. If MS can't catch a bid at $29, then support in the mid-$20s looks like the next likely stopping point.

If you decide to go short MS here, I'd recommend keeping a protective stop right at the 50-day moving average.

To see this week's trades in action, check out the Toxic Stocks portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

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Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes, Investor's Business Daily and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation. Follow Jonas on Twitter @JonasElmerraji.

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