Shares of Dow component American Express Company (AXP) fell 2% on Friday morning after the credit card provider beat fourth quarter EPS and revenue estimates while offering in-line fiscal year 2018 guidance. The company announced that it would suspend stock buybacks in the first half of the year in an effort to rebuild capital after taking a $2.4 billion charge for tax reform liabilities. That news contributed to selling pressure, going against the grain of recent buyback commitments by rival blue chips.
The decline has dropped the stock through $97, failing a Jan. 4 breakout at the psychological $100 level. More importantly, American Express stock has now entered a critical test at the 2014 high near $96, which it mounted in a November 2017 breakout. Bulls need to hold that line in the sand or risk widespread sell signals, establishing a broad double top pattern that could end the long-term uptrend.
AXP Long-Term Chart (1995 – 2018)
A five-year uptick gained traction in 1995, lifting the stock in a trend advance that stalled in the low $30s in 1998, buffeted by the Asian Contagion. It settled in the upper teens and turned higher three months later, rocketing into the 2000 peak at $55.15. A bear market decline tested the three-year low after the Sept. 11 attacks, bouncing strongly and recouping half of the year-long decline. It tested the low in October 2002 and turned higher, completing a double bottom reversal that contributed to strong buying pressure throughout the mid-decade bull market.
The stock completed a round trip into the 2000 high in 2006 and broke out, adding 10 points into the 2007 high and turning sharply lower during the 2008 economic collapse. It posted a 14-year low in the single digits in the first quarter of 2009 and bounced strongly into the new decade, returning to the 2007 high in 2013 and breaking out. That advance stalled at $96.24 in June 2014, establishing the high that is getting tested following this week's earnings report.
A year-long topping pattern broke to the downside in 2015, generating a major decline that continued into 2016's four-year low in the upper $40s. The subsequent bounce unfolded in an Elliott five-wave advance, reaching resistance at the 2014 high in October 2017. It broke out in November and stalled in the triple digits about two weeks ago, carving a narrow trading range that broke to the downside after this week's news. (For more, see: How American Express Makes Its Money.)
AXP Short-Term Chart (2014 – 2018)
Price action over three and a half years has carved unusual symmetry, with the decline and advance proceeding at similar trajectories. The uptick that started in February 2016 unfolded through three distinct impulse and two corrective waves, outlining a classic Elliot wave pattern. The third impulse wave stretched into a more vertical rate of change, printing an embedded Elliot five-wave pattern typical of climactic rallies that often end uptrends.
The November breakout cleared 2014 resistance by just six points before stalling out just above $100. This price action waves additional red flags because it will take little pressure to signal a failed breakout above the prior high. As a result, informed market players will be watching the $96 level closely to gauge the current supply of interested buyers. If they choose to sit on their hands, the downside could escalate quickly, dropping the stock toward $90.
On-balance volume (OBV) topped out in 2014 and entered a brutal distribution wave that finally ended in the first quarter of 2016. Buying pressure since that time has failed to reach the prior high despite the breakout, setting off a bearish divergence that could contribute to selling pressure in the coming weeks. Even so, the company has bought back millions of shares since 2014, skewing long term accumulation/distribution readings. (To learn more, see: Uncover Market Sentiment With On-Balance Volume.)
The Bottom Line
American Express stock is selling off after the company advised that it would suspend share buybacks until the second half of 2018. It is now testing the November breakout above the 2014 high, with a decline through $96 likely to set off more potent sell signals.
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>