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TheStreet Open House

5 Big Trades From the Financial Sector

Stocks in this article: WFCAHLFIIAIGAXP

American Express

American Express (AXP) is forming a triangle of a different sort right now. Like the other names on our list, American Express has been on a tear in 2012, rallying more than 23% as improving consumer sentiment spurred bigger dollar volume flowing through AXP's payment network. This fall, the symmetrical triangle in shares of AXP points to higher prices for the firm.

>>9 Dow Dividend Stocks With A+ Buy Ratings

A symmetrical triangle is a price pattern that's formed by converging resistance and support lines that are moving towards price at approximately the same rate. Old-school technicians often call the symmetrical triangle a "coil," because price action within the pattern typically resembles a tightening spring. Like a spring, the breakout from a coil pattern tends to be sharp and quick.

That makes a lot of sense. After all, over the course of a symmetrical triangle, volatility is slowly diminishing and the average daily range of American Express is getting smaller and smaller. But volatility is cyclical, so a period of very low volatility is a contrarian indicator that points to a big move.

With an uptrend in AXP's price action preceding the pattern, an upside breakout is the likeliest move for shares. That said, it's critical to wait for the breakout to actually happen before buying this trade.

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