American Express Stock Drops to $110 in 2019 Despite Strong Q3 Earnings

American Express Company (AXP), a key Dow component, experienced a decline in its stock price following the opening bell on Friday, despite reporting better-than-expected third-quarter earnings by $0.06 per share and maintaining its fiscal year 2019 outlook. Quarterly revenues rose 8.3% to $10.99 billion, supported by robust cardmember spending. However, a slight increase in delinquencies has tempered investor enthusiasm, hinting that loan activity might be nearing a cyclical peak.

In recent years, American Express has heavily relied on strong consumer spending and borrowing, shifting focus away from traditional business accounts. The current economic environment has been challenging for most startups, with large corporations aggressively capturing market share. Amex has adapted by realigning its strategy to target individuals and families with above-average purchasing power.

Investors have recognized the cyclical nature of the company’s performance, leading the stock to retreat from an all-time high near $130 to a six-month low just above $110. The past three months have seen significant distribution, reducing accumulation to levels not seen since February 2019. Nonetheless, the breakout above the 2018 high of $112 in April remains intact, suggesting the recent pullback may present a buying opportunity.

Long-Term Performance of AXP (1991 – 2019)

After hitting a multi-year low below $5.00 in early 1991, American Express embarked on a steady upward trend, surpassing the previous decade’s highs by 1995. Buying momentum intensified into the early 2000s, culminating in a long-term peak at $55.15 during Q3 2000. The downturn that followed bottomed out after the September 11 attacks in 2001, establishing new support in the mid-$20 range.

A retest in 2002 attracted strong buying, paving the way for gains throughout the mid-2000s bull market. The stock surpassed its prior high in 2006 but failed to sustain the breakout in 2007, entering a downtrend that worsened during the 2008 financial crisis, dropping below the 2001 low. Aggressive selling persisted into early 2009, marking the lowest point in 14 years.

Subsequently, a robust recovery brought the stock back to the 2005 high by 2013, triggering a breakout and solid gains into 2014 before peaking again. The following two years saw underperformance, with the stock falling to a four-year low in early 2016. Post-2016 election, buying interest surged, driving a steady bull market that peaked at an all-time high of $129.34 in July 2019.

The monthly stochastic oscillator has demonstrated a complex sell pattern since reaching an overbought level in January 2018. Despite two further attempts to reach this level over the past 21 months, the indicator’s lower highs and lows suggest sellers have gained control, increasing the likelihood that the ongoing three-month correction may continue.

Short-Term Chart Analysis (2018 – 2019)

A Fibonacci retracement applied to the 2018-2019 uptrend places the April 2019 breakout at the 38.2% retracement level, which was tested again in September. The Q2 rally also breached the black trendline of higher highs established since 2007, reflecting unusual relative strength. However, recent price fluctuations around this level raise concerns that the breakout might fail, especially if the stock falls below the 200-day exponential moving average (EMA) support at $116.

The On-Balance Volume (OBV) indicator reached an all-time high alongside the price in July but has since entered a distribution phase, hitting a nine-month low in early October. Weak price action following the recent opening could push OBV below this support, reinforcing the bearish signal from the stochastic oscillator. Combined with ongoing tests at key support levels, the next decline could breach the September low near $110.60.

Conclusion

Despite strong third-quarter earnings, American Express stock has relinquished earlier gains and appears poised to continue its three-month correction phase. Investors should monitor key support levels closely as the stock navigates this volatile period.

Disclaimer: The author held no positions in American Express securities at the time of publication.

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