Shares of American Express Company (NYSE:AXP) finished the day in the black Tuesday after an initial selloff. AXP stock has been in a defined downtrend since January, and with Tuesday’s selling it bumped into a technical support area that could well lead to a good oversold bounce.
American Express reported its latest batch of earnings on Jan. 21, posting earnings of $1.39 per share on revenues of $9.11 billion, trumping estimates. However, AmEx also announced it would be laying off 4,000 workers, which spooked investors, who sold off AXP stock to the tune of nearly 4% the following day.
Then on Feb. 12, news broke that Costco Wholesale Corporation (NASDAQ:COST) will end its relationship with American Express as of March 31, 2016, which investors also weren’t pleased to hear and sold the stock more than 6% on the day.
AXP Stock Charts
While the selling pressure in AXP stock began on Dec. 31, the stock actually topped out last summer. The most recent selling in the stock has brought AmEx back down to its 2009 uptrend line, which is to say that the weakness can in this respect be looked at as a mean-reversion move. Because AXP stock now sits at this multiyear support line — which, as we will see on the daily chart, matches up with a horizontal support area — the potential for a good oversold bounce here is good.
On the daily chart, we see that the quick 10% drop in AXP stock in the past three trading sessions crashed shares into an area of horizontal support that acted as resistance until October 2013. While in the bigger picture, the question remains whether all of the price action in 2014 was a big topping phase, in the near-term AXP looks oversold from a momentum perspective and also is stretched below its near-term moving averages, the 8- and 21-day moving averages (blue and yellow lines respectively).
Tuesday’s bullish intraday reversal led the stock to close the day well into Monday’s bearish candle, which now gives active traders a well-defined area to lean against on the long side — namely, Tuesday’s intraday lows at $77.
Active investors can now either wait for a confirmation follow-through buying day before buying AXP stock, or already scale into a partial position using Tuesday’s lows as a stop and an upside price target near $84.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
