The financial sector of the S&P 500 has showed a refreshing burst of relative and absolute strength as of late. This matters because at the margin, the more the financial sector participates and possibly leads a rally, the better the underlying bid in the S&P 500 tends to be.
Among financial stocks, American Express looks to be on the verge of a breakout.
Before looking at the daily chart of AXP stock where the breakout looks to be close to taking place, let's gain some perspective from the multi-year chart.
Note that when AXP stock broke out of its longer-term range to the upside in March of 2013, that this rally continued right into the summer of 2014. Since then however the multi-year trend has been lower.
Importantly, however, AXP stock's slide from its 2014 highs into the February 2016 lows may have just been an important and technically sound "re-test" of the former area of resistance, which I marked with the blue band.
If that is the case, then the latest bounce in AXP stock off the February lows may have just been the beginning of a larger move higher.
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On the daily chart note that AXP stock formed an important higher low in late-June, which ultimately gave way to the latest rally into a well-defined line of resistance that currently comes in around the $66 area.
The range of this stock over the past few days has tightened steadily and the stock is visibly coiling up below this line of resistance for a potential breakout higher.
Management and risk description
Importantly, a breakout does not take place until it takes place This is to say that anticipating a breakout with a large long position in the underlying asset through the lens of risk management is a poor strategy. The better way to play breakouts is to jump on them once they occur.
Entry: buy the stock or CFD upon a daily close above $66.
Stop: daily close below $64.
Target: $70, followed by $72.50.
Time horizon: two to four weeks.
— Edited by Michael McKenna
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Non-independent investment research disclaimer applies. Read more