The New York financial-services giant and Dow Jones industrials component offers credit cards, charge cards and travelers’ checks in the U.S. and worldwide.
Several things about the stock cause me concern. First and most important is that AmEx is an international company and will be hurt if the coronavirus spreads widely.
The other issues are from the weekly chart.
The stock traded as high as $138.13 at today’s open. This is above its annual risky level at $136.94, where profits should be taken.
The 12x3x3 weekly slow stochastic reading shows that the stock is in an inflating parabolic bubble formation, which typically leads to a decline of 10% to 20%, perhaps more.
The stock has been above its semiannual pivot at $126.92 with its quarterly value level at $121.38. Weakness to these levels would be a decline of 8% to 12%.
At today’s high the stock is up 11% year to date and in bull-market territory 55% above its Dec. 26, 2018, low of $89.05.
The stock is reasonably priced fundamentally with a p/e multiple of 16.6 and a dividend yield of 1.3%.
The daily chart for American Express
Courtesy of Refinitiv XENITH
The daily chart for American Express shows that Dec. 26, 2018, was a positive key reversal day. This occurred after the stock set its cycle low of $89.05 and then closed that day at $93.84, well above the Dec. 24, 2018, high of $91.55.
The stock tracked its 200-day simple moving average higher between Jan. 31, 2019, and Dec. 4, 2019.
The 2019 close of $124.49 was an important input to my proprietary analytics. The results include the annual risky level at $136.94, which was exceeded at today’s post-earnings high.
Its first-half semiannual pivot is $126.92 and its quarterly value level for the first quarter is $121.38. The monthly value level for January is $124.45.
The weekly chart for American Express
Courtesy of Refinitiv XENITH
The weekly chart for American Express is positive but extremely overbought with the stock above its five-week modified moving average of $127.34.
The stock is well above its 200-week simple moving average, or reversion to the mean, at $94.30.
The 12x3x3 weekly slow stochastic reading is projected to rise to 90.95 this week, well above the overbought threshold of 80 and above the 90 threshold putting the stock in an inflating parabolic bubble formation.
Trading Strategy: Buy weakness to its semiannual and quarterly value levels at $126.92 and $121.38, respectively, and reduce holdings on strength to its annual risky level at $136.94.
How to use my value levels and risky levels:
The closes on Dec. 31, 2019, were inputs to my proprietary analytics and resulted in new monthly, quarterly, semiannual and annual levels. Each uses the past nine closes in these time horizons.
New weekly levels are calculated after the end of each week. New monthly levels occur after the close of each month. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.
To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the past 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.
A reading above 90.00 is considered an inflating parabolic bubble formation, which is typically followed by a decline of 10% to 20% over the next three to five months.
A reading below 10.00 is considered too cheap to ignore, which typically is followed by gains of 10% to 20% over the next three to five months.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.