Is Morgan Soaring Ahead of Itself?

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Is it possible that a company's place in the queue of earnings releases plays a material role in how its performance moves its stock? Let's take a publicly traded company that is largely expected to under-perform and even miss estimates on key metrics. Let's call that company, say, Goldman Sachs
GS
. If these under-performing earnings catch the market at the end of a down-stroke on other sector players also having disappointed, can the stock
propel
up? Morgan Stanley
MS
reports earnings tomorrow at 10:00 AM and it looks like it won't have the benefit of catching the zigzaging market on the verge of a down momentum reversaI. MS shares are already up 6 percent for today on the good sector mood delivered by GS, who in turn looked golden on the shoulders of coal delivered by JP Morgan
JPM
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and Citigroup
C
. What does Morgan Stanley need to do tomorrow to keep this momentum up? Taking a page out of
Goldman
, Morgan Stanley may decide to chew on its proverbial leg in order to get out of a bind. We commented last year on the
pink
slips handed out at the financial giant, and
Fox News
says the company is looking to do more of the same. Consensus on the street is that Morgan Stanley will
report
a net loss of $0.57 per share and revenues of $5.6 billion for the fourth quarter. As was the case with Goldman, expectations have fallen over the last 60 days. Goldman had this to say on Morgan Stanley back in December, as it reaffirmed its Neutral rating on the stock: “We expect Morgan Stanley to post only modest non-GAAP profitability in the 4Q (not including the $1.8 bn MBIA-related pre-tax loss), as our new $0.01 estimate (prior $0.30) reflects a muted backdrop and limited expense flexibility given comp deferrals in prior years.” A stock move prediction, like a broken clock, is guaranteed to be right a certain percentage of the time. If MS shares do not take off tomorrow, they will tank (unless, of course, they go sideways). It all depends on how high a sugar rush (or crash) is produced on today's elevated financial shares.

ACTION ITEMS:

Bullish:
Traders who believe that Morgan Stanley will beat estimates again might want to consider the following trades:
  • Long MS: the stock may repeat the behavior of GS this morning, as investors look for the tiniest bit of good news relative to expectations
Bearish:
Traders who believe that MS has already priced in any exuberance on today's momentum may consider alternative positions:
  • Short MS: MS and GS charts have been zigzags these days, and there is reason to believe this behavior will persist.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.
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Posted In: EarningsLong IdeasNewsShort IdeasPreviewsReiterationEventsEconomicsIntraday UpdateMarketsAnalyst RatingsTrading IdeasGoldman Sachs
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