American Express stock fell to as low as $50.27 in February 2016 after the company’s net income fell by 12% in 2015. But as it usually happens with great companies, AXP was quick to rebound and less than two and a half years later the stock is trading near all-time highs above $100 per share. Besides, in its latest quarterly report the company said it expects full year 2018 earnings per share to approach $7.30.
However, just as the market overreacted and hammered the stock in 2015 and early-2016, we cannot rely on it to accurately reflect AmEx’s business results now. That is why taking a look at the situation through an Elliott Wave perspective is worth the effort. The chart of American Express stock below will help us find out if joining the bulls right away or waiting for a lower price is the better decision.
The daily chart of AXP shows the structure of the entire rally from $50.27 to $102.96 so far. As visible, it forms a textbook five-wave impulse, labeled (1)-(2)-(3)-(4)-(5). Wave (3) is extended and is almost exactly 2.618 times longer than wave (1), while wave (5) appears to be still in progress as an ending diagonal.
The Elliott Wave Principle states that every impulse is followed by a three-wave correction in the opposite direction. So if this count is correct, American Express stock is already trading in reversal territory. The bears should be expected to return as soon as wave (5) is over. Their natural targets lie near the support area of wave (4), which means a pullback to $85 – $80 per share is in the cards, representing a 15-20% downside from current levels. The negative outlook is also backed up by the RSI indicator, which visualizes a bearish divergence between waves (3) and (5).