Morgan Stanley (MS) has been a big beneficiary of the powerful post-election rally in the financial sector. At Tuesday's peak, the stock was up over 22% from its Nov. 4 low.
This huge rally has driven the stock well into new 2016 high ground with the help of an aggressive five-day accumulation wave. In the near term, though, further upside may prove difficult without a healthy pullback.
Toward the very end of Morgan Stanley's initial surge off the Brexit low, the stock cleared its declining 200-day moving average on heavy trade. The stock drifted slightly higher over the next week, but it was clear that upside momentum was easing.
Two weeks after the July 20 breakout, Morgan Stanley was retesting its 200-day moving average as part of a healthy pullback. By the second week of August, the stock was back in rally mode as its string of higher monthly lows stretched to five straight.
From the August low, Morgan Stanley is now up over 44%. This major bull run has pushed the stock into extremely overbought territory. With the 2015 peak now within striking distance and momentum stretched, another healthy pullback appears likely.
In the near term, Morgan Stanley investors should expect the $41 to $40 area to provide significant resistance. This area includes the stock's multi-month 2015 highs as well as Tuesday's spike high. If Morgan Stanley begins to retreat from this area, a deep pullback may develop.
Fortunately for the bulls, the stock has left behind layers of support during the post-election ramp. Initial support zone rests between $36 and $34.50.