A Classic Wall Street Overreaction

Is a major Wall Street firm doing a bait and switch? We think it might be…

The combination of two unforeseen events sparked the biggest-ever point drop on the Dow Jones Transportation Average yesterday – which could lead to a trading opportunity come tomorrow morning.

Here’s the scoop…

First off, all the major market indexes were in free fall yesterday after doubts emerged about the true status of the U.S.-China trade truce.

Second, Morgan Stanley “maintained” United Parcel Service (NYSE: UPS), commonly known as UPS, with an underweight rating – but then lowered its price target for the stock from $92 to $87.

Specifically, analyst Ravi Shanker released a note that read “We think the market is missing the risk Amazon Air poses to UPS/FDX growth.” He noted that Amazon (Nasdaq: AMZN) is planning to take delivery of 40 planes – which could grow to a fleet of 100 – by 2025.

When you combine a free-falling market with a specific downgrade like that… you get a massive down move on UPS like this…

While this 7% haircut looks troubling to ordinary investors (and has them running for the exits on UPS), here’s how we view it from a trading perspective…

On the surface, this move by Morgan Stanley – coming right around dividend time and at a historically strong period for UPS, right after it successfully settled all its labor issues – smells a little fishy.

Could it be that Morgan Stanley wants to get into UPS, but at a better entry price?

If so, releasing a note that adds to market uncertainty about the company is a classic “shake the tree” move to push shares lower. And since the timing of the note warns about UPS revenues dipping by 2025, they’re not really sticking their necks out too far to trigger this sell-off.

In The War Room, we’ll be keeping a close eye on this development. That’s because we get the sense this could be an opportunity to jump into UPS on the cheap.


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