MORGAN STANLEY: "Near term, a correction is looking more likely."

Earnings season can be a euphoric time for stocks.

It's a time when companies have the opportunity to show off growth that matches their valuations, and it can give traders looking to put money to work the rationale they need to invest.

However, that may not be the case this time around, Morgan Stanley warns.

A big part of that has to do with how investors approach earnings season. When they anticipate strong results, stocks tend to rally heading into the season, only to fade as results are actually reported, the firm says.

This scenario has played out in a relatively benign way twice already this year, with the maximum loss reaching just 3%. But it's different this time around, with the benchmark S&P 500 holding roughly just half of its previous upside, according to Morgan Stanley forecasts.

"If stocks follow the pattern they have been all year, actual earnings season will be a sell the news event and we could have a decent pull back or consolidation," a group of equity strategists led by Michael J. Wilson wrote in a client note. "Near term, a correction is looking more likely."

Source: BI
Trader-G.Bozhidarov

Read more:

• DAX continues consolidate
• Sodexo – Breakthrough the short trend channel and forming a new upward trend
• Norma Group (NOJ): Breakthrough a key resistance zone
• Capita PLC: Inverted head activated, for increace
• Canopy Growth Corporation (CGC) Breakthrough the bearish channel, possible long