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Two Ways To Play: Don't Bank On Morgan's Earnings


Strengthen your portfolio in good times and bad.


It's earnings week for financial services companies and Deutsche Bank's Mike Mayo is already slashing his forecast for Morgan Stanley (MS). According to Bloomberg, the analyst believes profits will plunge nearly 60% as revenues fall to 2005 levels.

He expects a 40% drop in so-called "core capital markets revenue" which includes fees from underwriting and merger advice. Also thought to be negatively impacting the quarter is Morgan's mark-to-market losses on company-held assets.

Mayo predicts Morgan will earn about $1.55 per share, down from his original estimate of $2. He also cut his 2010 forecast to $1.95 per share from $2.35.

The company is set to announce earnings before the opening bell Tuesday. But Goldman Sachs (GS) will beat it to the punch with an expected third-quarter report of -$3.50 per share on revenues of $931.60 million.

From the Bull Pen: A wedge is developing in the Financial ETF (XLF). With much of the Street expecting a bloodbath, if these earnings come in slightly better than expected, we could see this vehicle explode to the upside. But a conservative approach would be to wait and see how these stocks behave after these binary events have occured. Remember, opportunities are made up easier than losses.

From the Bear Cave: Those that insist on a downside play can consider American Express (AXP). Notice it following its 50 DMA to the downside. One options is to initiate entry if and when it reaches that level.

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No positions in stocks mentioned.

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