Despite delivering a solid earnings beat, American Express (AXP) has slid 9% over the past month. On July 18, the company reported stronger-than-expected EPS and revenue, outperforming analyst estimates across the board. The stock initially began to recover after the report, but got caught up in the broader market sell-off triggered by Friday’s disappointing labor data and the downward revisions to May and June jobs numbers. That said, Monday’s bounce didn’t look like your typical dead cat rally — and many names, including AXP, are showing signs of real strength as the market shakes off that knee-jerk reaction. All of this sets up a potentially attractive trade opportunity in AXP. While I already have a bullish bias based on fundamentals, I’m looking to validate the setup using three key technical indicators. A quick glance at AXP’s six-month daily chart reveals several signs that the stock may be ready to reverse course and push higher. RSI (relative strength index) The ever-reliable RSI is one of the simplest tools in a trader’s arsenal — offering insight not just into a trend’s strength, but also into potential turning points. While the longer-term RSI trend on AXP still points downward, we’re now seeing a noticeable uptick. It’s not a full reversal signal just yet, but it’s enough to put the stock on the radar and look for confirmation from other indicators before pulling the trigger. Directional movement index (DMI) The directional movement index (DMI) is made up of three parts: DI+ (green), DI– (red), and the ADX (blue), which gauges the strength of the trend. When DI– sits above DI+, it typically confirms that bears are in control. But when those lines begin to reverse — with DI+ climbing and DI– tapering off — it often hints that the momentum is starting to shift. That’s exactly what’s unfolding on the AXP chart right now. DI+ is gradually gaining ground while DI– is losing steam, suggesting that the recent selling pressure may be easing and buyers could be stepping back in. MACD (final confirmation) The MACD (Moving Average Convergence Divergence) is a go-to tool for identifying trend reversals. I’m using a fast MACD for this trade with settings (5, 13, 5). This version of MACD is valuable in finding trade setups. In the chart below, the MACD line (blue) and the signal line (yellow) are inching closer. I’ve marked previous instances where a bullish crossover — when the blue line moves above the yellow — successfully signaled a shift in trend. As for AXP, that crossover hasn’t happened yet, so this setup is still in wait-and-see mode for now. I cover many of these setups in my book “Mean Reversion Trading” and provide further insights and resources on my website https://tradingextremes.com The trade setup: AXP 295-300 bull call spread To take a bullish trade on AXP, I’m using a trade structure called a “bull call spread.” With AXP trading at $297, I would want to buy a $295 call and sell a $300 call as a single unit. However, since we are waiting for the MACD crossover, that would mean by the time the confirmation comes from MACD, the stock will likely be trading higher. If the stock is trading around $302 when the confirmation, comes I would construct a 300-305 call spread instead. If AXP moves just a few dollars up from here and the stock price is at or above my short strike by expiration, this trade will yield a 100% ROI on capital risked. With 10 contracts, this equates to risking $2,500 to potentially gain $2,500. Here is my exact trade setup: Buy $295 call, Aug. 29 expiry Sell $173005 call, Aug. 29 expiry Cost: $250 Potential Profit: $250 -Nishant Pant Founder: https://tradingextremes.com Author: Mean Reversion Trading YouTube, X: @TheMeanTrader DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
