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Time to sell?

Scott Jagow Jun 7, 2007

TEXT OF INTERVIEW

SCOTT JAGOW: Wall Street’s been on a two-day skid, and the downturn could go on for a while, if you believe Morgan Stanley. The brokerage is telling its clients to sell. We turn now to Ambrose Evans-Pritchard, a business reporter with the Daily Telegraph. Ambrose, why is Morgan Stanley telling people to get out?

AMBROSE EVANS-PRITCHARD: Well they have this very sophisticated model with a number of indicators in it and for the first time since the dot-com bust, the three key indicators are all flashing sell signals at the same time. This “full house” sell signal has only happened five times since 1980 and on each occasion the stock market’s dropped 15.2 percent over the next six months.

JAGOW: And how much of a drop is Morgan Stanley predicting now and for how long?

EVANS-PRITCHARD: Well they’re being a little cautious about it, but their model suggests a 14 percent correction. Although they’re concerned that it could be more serious. Now they’re using a six-month kind of time frame. They think that there’ll be a shakeout and just to be quite clear about this, they’re not predicting a recession or a blood bath or anything like this, they’re just saying, you know, cut your exposure, particularly on all the smaller stocks and maybe keep some of the bigger companies because those are not as overpriced.

JAGOW: OK Ambrose Evans-Pritchard from London, thank you.

EVANS-PRITCHARD: Thank you, bye.

TEXT OF INTERVIEW

SCOTT JAGOW: Wall Street’s been on a two-day skid, and the downturn could go on for a while, if you believe Morgan Stanley. The brokerage is telling its clients to sell. We turn now to Ambrose Evans-Pritchard, a business reporter with the Daily Telegraph. Ambrose, why is Morgan Stanley telling people to get out?

AMBROSE EVANS-PRITCHARD: Well they have this very sophisticated model with a number of indicators in it and for the first time since the dot-com bust, the three key indicators are all flashing sell signals at the same time. This “full house” sell signal has only happened five times since 1980 and on each occasion the stock market’s dropped 15.2 percent over the next six months.

JAGOW: And how much of a drop is Morgan Stanley predicting now and for how long?

EVANS-PRITCHARD: Well they’re being a little cautious about it, but their model suggests a 14 percent correction. Although they’re concerned that it could be more serious. Now they’re using a six-month kind of time frame. They think that there’ll be a shakeout and just to be quite clear about this, they’re not predicting a recession or a blood bath or anything like this, they’re just saying, you know, cut your exposure, particularly on all the smaller stocks and maybe keep some of the bigger companies because those are not as overpriced.

JAGOW: OK Ambrose Evans-Pritchard from London, thank you.

EVANS-PRITCHARD: Thank you, bye.

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