American Express Company (AXP) is a financial services giant and a component of the Dow Jones Industrial Average. The company offers credit cards, charge cards and travelers' cheques in the U.S. and around the world. Amex stock had a strong bull market runup of 127% from a low of $50.27 set during the week of Feb. 12, 2016, to its all-time intraday high of $114.55 set on Dec. 3, 2018. This wide range makes the use of Fibonacci retracement levels a great tool of technical analysis to suggest a future trading range. The stock held its 38.2% rally retracement at $90.00 and is now just below its 23.6% retracement at $99.39.
Amex stock closed Monday, Jan. 14, at $98.44, up 3.3% so far in 2019 and in correction territory at 14.1% below its all-time intraday high of $114.55 set on Dec. 3. The stock is also 10.5% above its Dec. 26 low of $89.05. The stock is below its 50-day and 200-day simple moving averages at $103.37 and $102.02 on its daily chart and above its "reversion to the mean" at $81.96 on its weekly chart.
The stock is nearly matching the performance of the Dow 30, which is up 2.5% so far in 2019 and is 11.3% below its all-time high set of 26,952.81 set on Oct. 3. The average is up 10.1% from its Dec. 26 low of 21,712.53.
American Express is set to report earnings after the closing bell on Thursday, Jan. 17, and analysts expect the company to post earnings per share of $1.79. The stock has a market-neutral P/E ratio of 13.76 and a dividend yield of 1.58%. There are two sides to the coin for this report. Analysts say that earnings will benefit from higher spending by consumers, small businesses and corporate cardmembers. However, provisions for losses are on the rise and have been since the second quarter of 2018. Higher write-off rates are needed to offset delinquencies.
The daily chart for American Express
American Express has been above a "golden cross" since Aug. 26, 2016, when the stock closed at $64.79. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average, indicating that higher prices lie ahead. This positive led the stock to its all-time high of $114.55 set on Dec. 3.
The 50-day and 200-day simple moving averages are converging at $103.37 and $102.02, respectively, and a negative reaction to earnings could result in a "death cross" by the end of the month. A "death cross" occurs when the 50-day simple moving average falls below the 200-day simple moving average, indicating that lower prices lie ahead. Based upon the 2018 closes, there are three horizontal lines on the chart – these are my weekly value level at $92.96 and my monthly and quarterly risky levels at $104.35 and $112.93, respectively.
The weekly chart for American Express
The weekly chart for American Express will be positive if the stock ends this week above its five-week modified moving average of $100.14. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $81.96. This key average was last tested at $77.56 during the week of June 2, 2017. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 33.45 this week, up from 32.12 on Jan. 11.
The horizontal lines are the Fibonacci retracement of the bull market run from the February 2016 low of $50.27 to the high of $114.55 set in December 2018. Note that the stock is between its 38.2% retracement at $90.00 and its 23.6% retracement of $99.39. A weekly close above this retracement and the five-week modified moving average at $100.14 would shift the weekly chart to positive.
Given these charts and analysis, my trading strategy is to buy Amex shares on weakness to my weekly value level of $92.96 and reduce holdings on strength to my monthly risky level at $104.35.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.