American Express Flirts With Double Top Support

07/27/06 01:02:09 PM

by Arthur Hill

American Express (AXP) formed a double top in 2006, but support is refusing to go quietly and the pattern has yet to be confirmed.

Security: AXP
Position: Hold

The double top is one of the more reliable bearish patterns in technical analysis. However, reliability increases when one waits for confirmation with a support break. AXP pierced support over the last few days, but a convincing break remains elusive and the pattern is as yet unconfirmed.

Graphic provided by: MetaStock.

First, let's look at the double top on the weekly chart. The stock advanced from the low 40s and met resistance around 55 in February, March and June. The stock formed a reaction low at 50.77 in between the March and June peaks and this level holds the key to the double top. A convincing break below 50.77 would confirm the double top and project further weakness to around 46 (blue oval).

Graphic provided by: MetaStock.

Just what is a convincing break anyway? On the daily chart, the stock pierced support four times over the last two weeks and closed below 50.77 twice last week (gray oval). However, the stock rebounded in the next day or two and the support break did not hold. A filter is needed to validate the support break. This can be a price and/or time filter. A close below 50 could, or three days below support will help insure that the support break is valid.

Right now, support is holding and the stock actually advanced on above average volume the last three days. This is impressive and a break above the reaction high at 52.35 (red line) would be short-term bullish.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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