American Express Has Room to Move

 | Jan 18, 2012 | 2:00 PM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

axp

,

v

,

ma

This commentary originally appeared at 11:30 a.m. on Real Money Pro – Click here to learn about this dynamic market information service for active traders.

Dow component American Express (AXP)  reports its fourth-quarter earnings on Thursday evening, and not a moment too soon, because the financial giant faces a huge challenge in 2012. While the economy grows at a painfully slow pace, competitors Visa (V)  and MasterCard (MA)  are enticing customers away with cheaper ways to process credit cards and organize business records.

The competition turns big profits on debit cards while their credit-card operations are stuck in the mud. American Express has no debit operations and is forced to build revenue with a high-end customer base in a more challenging regulatory environment. In addition, it provides direct credit from its own coffers, while Visa and MasterCard take transaction fees and force their banking partners to assume credit risk.

American Express has a great way to make money during periods of high demand, low default and big spreads between loan wholesale costs and retail rates. But none of those positive factors are in play during this underwhelming post-credit-collapse economic cycle.

AXP Monthly
eSignal

The stock topped out near $12 (post-split) a few months before the 1987 crash and fell into a trading range (blue line) that lasted for eight years. It finally broke out in the summer of 1995 and posted fabulous gains for the next five years, hitting $55 in October 2000. Price then turned south with the broad market, losing more than half of its value before bottoming out in late 2001.

A two-year basing pattern (red circle) gave way to a secondary uptrend that pushed over the 2000 high (red line) in 2006. The stock spent more than a year at that lofty level, building a topping pattern that broke to the downside in late 2007. The furious decline that followed undercut the 2001 low, dragging price to a 13-year low in early 2009.

The subsequent bounce recovered 78.6% of the bear market downtrend, with the uptick peaking at $54 in July of last year. You'll note that that's less than 2 points from the 2000 high. Price has spent the last six months grinding sideways in a broad holding pattern, while market players wonder if the recent economic upturn will build company profits beyond modest expectations.

AXP Weekly
eSignal

The weekly pattern shows an eight-month V-shaped bounce off the 2009 low, followed by two price clusters (red boxes) that roughly correspond to 2010 and 2011 trading, respectively. The sideways patterns sit on top of the 50-week EMA, which continues to offer strong support. Through it all, the stock has gained just 12 points and remains vulnerable to more whipsaws.

We can draw a rising channel (blue lines) lines around those clusters, which now define the languid pace of price appreciation. The stock is currently trading near the dead center of this pattern, in narrow-range action that could radically change after Thursday's confessional. For now, there isn't much for sidelined players to do, and I certainly don't recommend an early entry.

The rising channel opens the door to a post-earnings buying spike that tests, and marginally exceeds, the October high at $52.35. That positive price action would bring the more important 78.6% retracement and 2000 high near $55 back into play, with a channel breakout setting the stage for a greater rally impulse up to the all-time high in the mid-$60s.

AXP Daily
eSignal

The daily pattern is chaotic: The stock had a selloff from the July high, followed by months of seesaw action that has gone absolutely nowhere. It's bullish that accumulation, as measured by on-balance volume (OBV), has remained strong through the whipsaws, telling us that institutions are hanging tough, hoping that price will eventually lift out of the trading range and test new highs.

Heading into earnings, pay attention to the red trendlines formed by the lower highs and higher lows. A push across either line will shift price out of neutral and support a larger scale trend, higher or lower. With the stock holding firm at the 200-day EMA, as well as a resilient January market, I'll keep my focus on the upside, looking for a breakout into the mid-$50s.

Columnist Conversations

Volume in the SPY today was nearly double its 50 day average of volume. (The graph at the bottom of the chart ...
Is this the biotech revolution or the biotech bust? View Small Cap Biotechs Like Never Before: Transparency is...
Market got beat like a rented mule today as equities posted their second worst day of the year. Geopolitical ...
down 302 now, at 16577 the dow 30 is unchanged for 2014. roll the media hype!

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.