Trade Morgan Stanley’s (NYSE: MS) Rally for a Potential 100% Return by mid-August

Stocks were mixed on Wednesday with two indices moving higher and two moving lower. All four of the indices opened higher, but the Dow dipped in to negative territory in the early going. The S&P would end up in negative territory, but it wasn’t there for much of the day. The Dow would finish with a loss of 0.21% and the S&P dropped 0.11%.

The Russell led the way with a gain of 0.33% and the Nasdaq joined it on the positive side with a move of 0.13%.

Seven of the 10 main sectors moved lower on the day with the utilities sector dropping the most at 1.09%. The materials sector dropped 0.64% as the second worst performer and it was followed by the consumer staples sector with a decline of 0.61%.

The consumer discretionary was the top performer with a gain of 0.75%. The financial sector rallied 0.25% and the energy sector gained 0.24%.

My scans remained positively skewed yesterday with 61 bullish signals and nine bearish signals.

The barometer dropped ever so slightly after yesterday’s results were added in to the calculation. The final reading was 79.6, down from 81.6 on Tuesday.

None of the trade setups on the bearish list looked great to me and that leads me to a fourth straight bullish trade. There were several that got my attention, but the one that got my attention the most was on Morgan Stanley (NYSE: MS). In addition to being on the bullish list, the company’s fundamental ratings are really good. The EPS rating is a 97 and the SMR rating is an A.

We see on the chart how the stock has moved sharply higher since the end of October. After the initial move higher a trend channel developed that has helped define the swings within the overall trend since the beginning of the year. The stock just hit the lower rail of the channel and the stochastic indicators made a bullish crossover from oversold territory. We see a similar move in February and that preceded a pretty good rally in the stock.

Buy to open the August 82.50-strike calls on MS at $5.60 or better. These options expire on August 20, 2021. I suggest a target gain of 100% and that means the stock will need to reach $93.70. The stock was up above $94 earlier this month so it won’t have to break to a new high to reach our target.

— Rick Pendergraft

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Rick Pendergraft, Trades Of The Day

Rick Pendergraft has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick's analysis process includes fundamental, sentiment and technical analysis.