Editor’s note: Serge Berger, the head trader and investment strategist for The Steady Trader, will be providing the Trade of the Day until Sam Collins returns on June 27.
American Express (NYSE: AXP) – Several credit card companies such as Mastercard (NYSE: MA), Visa (NYSE: V) and American Express broke higher out of bullish patterns in April. AXP, specifically, acted well technically, and now is coming back to its breakout levels from April.
Fundamentally, marginally improving U.S. consumer credit seems to be helping credit card companies. Consumer loan charge-off rates and consumer loan delinquencies rates have dropped over the past 24 months, from roughly 10% down to 8%, and from 6.5% to 4%, respectively. For American Express, the most recent data for May showed that loan growth is up and credit card delinquencies are at new lows.
Structurally speaking, credit card companies have been issuing share repurchase programs. Mastercard, for example, announced in April that it would double its repurchase program from $1 billion to $2 billion. American Express also has further 2011 share repurchase plans.
As for the debt rating agencies, Fitch reaffirmed its A+ investment grade rating for AXP. And finally, much of the so-called Durbin Amendment, which limits “swipe fee charges” that banks and card companies can charge retailers, has been resolved, and as such, any additional overhang for American Express should be lifted.
Since July 2009, AXP has been rising in a nicely defined upward trend that is about to be tested again. Major resistance dating back to April 2008, near the $52 mark, was tested in mid-May, and the stock has fallen almost 10% since.
Zooming in closer reveals an important breakout level at $47. After finding resistance near $47 multiple times since December 2010, AXP finally broke above it in April, and is now coming back down for a retest of that very level. The aforementioned longer-term uptrend currently comes in around $46, or approximately 4.5% lower than current levels of $48.25. Should the $47 area not hold as support, I would think $46 could do so.
Very close up, please note yesterday’s bullish engulfing candlestick, which for aggressive traders could provide an opportunity to go long with stops at yesterday’s lows around $46.90 and an initial target near $49.75. More risk-averse traders may want to wait for another bullish confirmation day before going long.
