Sellers in Control After American Express Earnings

Dow component American Express Company (AXP) is trading lower on Friday morning after meeting fourth quarter earnings expectations and slightly raising fiscal year 2019 revenue guidance. A 14% year-over-year increase in loss reserves may have spooked investors concerned about loan quality, but the limited downturn has had little impact on an already bearish technical outlook in the aftermath of December's brutal 22% decline.

The financial services giant plunged from an all-time high last month, trapping complacent shareholders who will now think twice about reloading long positions. While the rout held February support, it broke the 200-day exponential moving average (EMA) by 13 points and hasn't remounted that long-term barrier in January price action. This suggests that short sellers are now rounding the wagons, looking for the perfect price to jump back on board.

AXP Long-Term Chart (1995 – 2018)

Long-term chart showing the share price performance of American Express Company (AXP)

The stock broke out above the 1987 high in 1995, entering a powerful trend advance that ended in the mid-$50s in the second half of 2000. It sold off when the tech bubble burst and continued to lose ground into September 2001, bottoming out at $21.18 just five days after financial markets reopened. A bounce into the upper $30s got sold in June 2002, yielding a support test that completed a double bottom reversal.

Committed buyers took control through the mid-decade bull market, reaching the 2000 high in 2006. The stock broke out into 2007 and topped out in the mid-$60s in August, marking the highest high in the next six years, while the subsequent pullback escalated during the 2008 economic collapse. That downdraft broke the 2001 low by more than 11 points before finding support in the single digits in March 2009.

The subsequent recovery wave completed a round trip into the 2007 high in 2013, triggering an immediate breakout and rally that reached the upper $90s in 2014. The stock then entered a major correction, descending more than 45 points into February 2016, ahead of a healthy uptick that reached new highs in November 2017. Volatility increased sharply in 2018, culminating in the run-up into December's all-time high at $114.55. 

The monthly stochastics oscillator crossed into a sell cycle in March 2018, generating volatility but little downside until December's wicked reversal. Although that technical measurement has dropped to the lowest low since 2016, it's still situated in the upper half of the indicator panel, predicting another three to six months of relative weakness. Combined with last month's major downturn, it will be hard for the stock to hold support at the 2018 low near $87.

AXP Short-Term Chart (2017 – 2018)

Short-term chart showing the share price performance of American Express Company (AXP)

Two-sided action set into motion as soon as the stock mounted the 2014 high in November 2017, generating a rectangular pattern that crisscrossed the old high repeatedly into June 2018. An August breakout above range resistance failed to gain traction, posting a four-month double top pattern that broke to the downside in December. Selling pressure eased less than two points above range support, while the breakdown level has now aligned with the 50- and 200-day EMAs between $101 and $103.

That formidable barrier is unlikely to get mounted in coming weeks, raising the odds that timely short sales will profit from a decline that could reach and potentially break the February 2018 low, which has now aligned with the 200-week EMA. In turn, that would confirm a failed breakout above the 2014 high and set off aggressive sell signals, favoring additional downside into the .618 Fibonacci retracement level of the 2016 into 2018 uptrend in the mid-$70s.

The on-balance volume (OBV) accumulation-distribution indicator supports this bearish view, signaling a major bearish divergence when it failed to mount the January high with price in August. The sell-off into year end dumped this technical reading to a 14-month low, which establishes another bearish divergence, predicting that price will eventually follow in a major breakdown.

The Bottom Line

American Express stock is trading about 2% lower in Friday's pre-market after the company reported mixed fourth quarter earnings results. The metrics are unlikely to ease December's technical breakdown, raising the odds for lower prices in the coming months.  

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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