Dow component American Express Co (AXP) reports earnings after the close on April 19 with Wall Street analysts expecting $1.27 EPS on $7.76-billion in quarterly revenues. The market hasn’t rewarded financial stocks so far in this reporting cycle, with major commercial banks getting sold after meeting modest expectations. This financial giant could have an easier time, more levered to consumers and small businesses who continue to spend at a healthy pace.
However, there are technical reasons to believe the stock is nearing the end of a multi-year bull market cycle and will enter a secular downtrend in coming years. Price action at key support levels should tell the tale, with bulls controlling the ticker tape until a decline breaks the mid-60s. Even so, it’s a good idea to think twice before owning this issue, due to higher risk going forward.
AXP Monthly Chart (1993–2017)
The stock topped out just above $10 in 1987 and entered a downtrend that continued into the 1992 low at $4.63. It then turned higher in a strong trend advance that coincided with the dismantling of the military-industrial complex and emergence of the Internet. The uptrend topped out at $55.15 in 2000 and rolled into a bear market decline that ended in the low-20s following the September 11th attacks.
It tested the low in October 2002, ahead of a slow motion recovery that took five years to reach the prior high. A breakout into 2007 added just 10-points before the uptrend fizzled out and rolled in the 2008 economic collapse. That historic plunge settled at a 13-year low in March 2009, ahead of a strong bounce that completed a round trip into the 2007 high in the first half of 2012.
A breakout into 2013 caught fire, lifting the stock to an all-time high at $96.24 in July 2014. It completed a 2-year topping pattern at the end of 2015 (red line) and broke down to a 4-year low at $50.27 in February 2016, with the decline also failing the 2013 breakout. The uptick into 2017 remounted that resistance level (blue line), reinforcing long-term support in the low to mid-60s.
The monthly Stochastics oscillator reached the overbought level for the first time since March 2013 in October 2016 and turned lower in February 2017, with price action into April setting off the first major sell signal since March 2014. This is a significant event that raises odds the yearlong recovery wave has come to an end, and the stock will post a lower high within a broad consolidation pattern that eventually signals the end of its multiyear uptrend.
AXP Weekly Chart (2014-2017)
A Fibonacci grid stretched across the 2014 into 2016 decline organizes price action into 2017, with the selloff accelerating after the stock broke the 50% level and 200-week EMA in the mid-70s. The blue line denoting the 2013 breakout level aligns tightly with the .386 retracement, adding importance to the October 2016 breakout above that level. Finally, note how the rally ended in the first quarter just above the .618 retracement and a few points under the broken top (red line).
The long-term technical tone will remain constructive as long as price holds above the blue line while the oversold weekly Stochastics oscillator raises odds for a buy-the-news reaction after this week’s earnings report. In turn, structural weakness predicted by the long-term sell signal may not come into play until bulls reload positions and try to lift the stock back into the first quarter high.
The Bottom Line
American Express has entered a long-term sell cycle that could eventually test support in the 60s, but shorter-term relative strength readings could delay that bearish outcome until bulls take a final bite at the apple, generating a recovery wave that’s likely to fail in the upper-70s or lower-80s.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>