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RSI


A Blow-Off Top For American Express

09/22/05 11:47:47 AM
by Arthur Hill

A high-volume surge and bearish candlestick reversal point to a blow-off top for American Express.

Security:   AXP
Position:   Sell

High volume on an advance is generally a bullish sign. However, it can also signal too much enthusiasm and lead to a top. American Express (AXP) surged over the last two weeks with good volume and formed a long white candlestick on the second-highest volume of the year (red arrow, Figure 1). This surge abruptly ended with two small black candlesticks and then a gap down. The pattern looks like a bearish harami. Moreover, the gap and long black candlestick confirm this pattern and point to further weakness.

FIGURE 1: AMERICAN EXPRESS. AXP surged over the last two weeks with good volume and formed a long white candlestick on the second-highest volume of the year (red arrow). This surge abruptly ended with two small black candlesticks and then a gap down. The pattern looks like a bearish harami. Moreover, the gap and long black candlestick confirm this pattern and point to further weakness.
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
It is also interesting to note that volume was high when the stock declined over the last two days. A low-volume decline shows tepid selling pressure and would be more indicative of a mild correction or consolidation. This increase in selling pressure (volume) further validates the short-term reversal, and the next support area is around 55.

The relative strength index (RSI) also confirms the recent reversal. RSI moved above 70 (overbought) on September 12 and then formed a lower high. In the meantime, AXP formed a higher high with a close above 59 on September 16. The lower high in RSI and higher high in AXP formed a negative divergence (red line). RSI subsequently moved below its prior low at 54; this is an RSI sell signal.



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.

Title: Editor
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Date: 09/22/05Rank: 5Comment: 
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