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Spastic Plastic: Speculating on the Fortunes of American Express (AXP)

Posted on February 21, 2022

Credit cards is what we’re discussing today, in an effort to help you pay down yours.

Have it your way, Mr. Toad.

The trade is speculative and has a wild profit potential of 1900%!

But before we get there, cast your beadies on the following two charts.

They’re the latest revolving credit reports from the Fed, and they show some interesting developments (revolving credit is credit card debt).

And the takeaway is as follows –

In November, U.S. consumers reached for the plastic faster and with greater frequency than at any time in history (top chart).

Then, with a deke that would have made Jean Beliveau blush, that same crowd reined in their spending in Decemberwhen they should have let the hogs run free!

So…?

Those numbers are damning enough in the economic sphere, but how they relate to our trade today will become crystal clear as we look at American Express’ (NYSE:AXP) chart, below.

Right-o, then…

Fundamentals

We’re going to look at AXP’s raw numbers now, because they also portend ill for the stock.

  1. It starts with P/E, now at a difficult-to-justify 19.50.
  2. Dividend Yield is an anorexic 0.88% per annum,
  3. Price to Book is – what!? – 6.75,
  4. Debt to Equity is ridiculous at 5.65, and
  5. Sales over the last five years have grown at an entirely unimpressive 3.50%.
  6. Moreover, insiders have sold 39% of their stock over the last six months, for an outsized ka-ching of $90 million – $82 million of which were offloaded in the last three weeks!

So why would YOU buy…?

Now look at the chart – the daily for the last year.

It’ll give you a better perspective of where we’re coming from –

Technically, AXP is now doing a standup routine –

  1. The angle of the stock’s ascent over the last month is comic-like (boxed, in black).  Any time you see a 30% move on a legacy name like Amex in just three weeks, you gotta laugh – and get ready to trade.  Moreover, the rise was predicated on optimism from the above revolving credit stats from November, while the latest stall came from the release of December’s numbers just two weeks ago that brought the crowd back to earth.  The prognosis is weak.
  2. The move higher also created a rising wedge, a formation that’s always bearish (in red).  Now that price has cut through the lower edge of the wedge, the selling should begin in earnest.
  3. RSI is diverging against price (in green), further proof that a top is now forming, and
  4. MACD is rolling lower.  Momentum is clearly being handed to the bears.

And that leads us to propose the following SPECULATIVE trade on the plastic dealers at AXP

A Jew and His Money heartily recommends you consider selling the AXP March 18th 185/190 CALL spread* for a credit of $3.15 (12.90/9.75) and buying the AXP March 18th 195/185 PUT spread** for $3.65 (6.80/3.15).  Total debit on the affair is $0.50.

[*Sell the 185 CALL and buy the 190 CALL.  **Buy the 195 PUT and sell the 185 PUT.]

Rationale: for a $0.50 throw-down, we earn the possibility of pulling in a max $9.50, thanks to some very tight spreads.  That’s a gain of 1900%, if we can pull it off.

Max loss on the trade is just $5.50, (difference between the CALL strikes plus the initial debit).

And best of all, AXP has to decline just 5.0% to pay us in full.

Dangers: the trade expires in a month, so the need for some relatively quick downside action is paramount.

That’s why we’ve labeled this one SPECULATIVE.

We’ll consider closing as AXP makes contact with its rising short-term MA, now at 180.

However, if it gets there quickly, we’ll likely hold for more potential downside.

Stay tuned.

And may G-d avenge the blood of all those the innocents slain and tortured by Erev Rav reshaim.

With kind regards,

High L. O’Haynew

 

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