This bear market rally has more room to go – Morgan Stanley’s Wilson

Michael Wilson, Morgan Stanley’s Chief U.S. Equity Strategist, and Chief Investment Officer remain bullish on U.S. stocks into the year-end. Wilson believes the ongoing bear market rally has more legs before “the deteriorating fundamentals take us to lower bear market lows next year.”

Wilson prefers to focus on the technical at the moment and continues to see the market breadth as a key reason why he remains bullish in the near term. Last week, he raised many eyebrows when he said the S&P 500 could reach a price trough of 3,000-3,300 in Q1 2023.

“We’ve got a fair amount of pushback on that our forecast on this front is too aggressive both from a magnitude and timing standpoint. While directionally bearish, many investors struggle to see even a retest of 3,500. In our view, what was priced at the October lows was peak Fed hawkishness, not material earnings downside,” Wilson explained in a client note.

Morgan Stanley projects the EPS estimates to fall by 15-20%, which should “demand a more recessionary type 13.5-15x multiple on materially lower EPS.”

If the Fed decides to pause hiking, Wilson says the equity market “may get the benefit of the late cycle “pause trade” typically worth +15%.” However, in that case, stocks won’t get a boost from the “cuts before a recession” trade, which Wilson estimates is worth another +10%.

MORGAN STANLEY TECHNICAL ANALYSIS DAILY CHART:

In the daily chart, Morgan Stanley is currently trading in the up channel. Morgan Stanley is currently trading below 5 & 20 SMA.

RSI is in the Selling zone which shows bearishness. And stochastic is suggesting a downtrend.

Morgan Stanley’s immediate support level is at 85.97 & resistance level is at 87.98

HOW TO TRADE IN THIS WEEK

Morgan Stanley is trading in an up channel, but as we can see trend reversal is possible to the downside if it breaks the previous low.

TRADE SUGGESTION: SELL AT 86.00, TARGET AT 85.03, SL AT 87.93