Dow component American Express Company (AXP) is trading lower after Friday's opening bell despite beating third quarter profit estimates by $0.06 per share and reaffirming fiscal year 2019 guidance. Quarterly revenues matched bullish expectations, rising 8.3% to $10.99 billion, with healthy card member activity underpinning growth metrics. However, a slight rise in delinquencies has undermined buying interest, suggesting that loan activity may be at or close to a cyclical peak.
American Express has grown dependent on strong customer spending and borrowing in recent years, while traditional business account activity has taken a back seat. The current economic cycle has been bad news for the vast majority of start-ups, with mega corporations consuming market share at an aggressive pace. Amex has adjusted well to this paradigm shift, realigning business objectives to focus on individuals and families with higher-than-average buying power.
Investors have taken notice of the company's cyclical nature in recent months, dropping the stock from an all-time high near $130 into a six-month low above $110. Distribution in the past three months has been especially aggressive, knocking accumulation to the lowest levels since February 2019. Even so, April's breakout above the 2018 high at $112 remains intact, indicating that the recent swoon may offer a buying opportunity.
AXP Long-Term Chart (1991 – 2019)
A persistent downtrend ended at a multi-year low under $5.00 at the start of 1991, giving way to a steady uptick that mounted the prior decade's high in 1995. Buying interest escalated into the new millennium, generating a long-term top at $55.15 in the third quarter of 2000. The subsequent downturn ended after the Sept. 11 attacks in 2001, yielding new support in the mid-$20s.
A 2002 retest at that level attracted committed buying interest, setting the stage for steady gains during the mid-decade bull market. It mounted the prior high in 2006 but failed the breakout one year later, entering a downtrend that accelerated through the 2001 low during the 2008 economic collapse. Aggressive selling pressure continued into the first quarter of 2009, dropping the stock to the lowest low in 14 years.
A dramatic recovery wave completed a round trip into the 2005 high in 2013, generating an immediate breakout that posted solid gains into 2014, when the stock topped out once again. It underperformed badly in the next two years, dumping to a four-year low in the first quarter of 2016. Buying interest returned after the presidential election, generating a steady bull market run that posted an all-time high at $129.34 in July 2019.
The monthly stochastics oscillator has carved a complex sell pattern since hitting an extremely overbought technical reading in January 2018. It has carved two more trips into that lofty level in the past 21 months, but the sequence of lower highs and lower lows has taken a toll, with the indicator now accelerating toward the panel's midpoint. In turn, this places sellers in firm control while raising the odds that the stock's three-month correction still hasn't run its course.
AXP Short-Term Chart (2018 – 2019)
A Fibonacci grid stretched across the 2018 into 2019 uptrend places the April 2019 breakout at the .382 retracement level, which was tested in September. The second quarter rally also mounted the black trendline of higher highs in place since 2007, indicating unusual relative strength. However, recent price action has crisscrossed this level, indicating that the breakout could fail with a decline that also breaks 200-day exponential moving average (EMA) support at $116.
The on-balance volume (OBV) accumulation-distribution indicator posted an all-time high with price in July and entered a distribution phase that hit a nine-month low in early October. Relatively weak price action after this morning's opening print could drop OBV through that support level, adding weight to the bearish stochastics reading. Taken together with continued testing at key levels, the next downturn could easily break the September low at $11.06.
The Bottom Line
American Express stock has given up gains posted after this morning's third quarter earnings report and could head into the next leg of a three-month correction.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.