Entering Short American Express (AXP)

Not much changed this week ahead of next Wednesday's Fed decision. Markets traded higher and are tightening into the apex of a wedge pattern. The current price action continues to form a "Bear Flag" pattern.

SP500 Daily bars

There is still an undecided bias to the broader averages. Until we see a move away from the swing high at 1,993 or below 1,903 not much is to be done. I expect increased volatility around the Fed announcement next week, but it will be this range I will be focusing on.

Should the market breakout to the upside from here there is still the large resistance level at 2,040 to contend with. Its important to keep an open mind and take what the market gives us.

This week we are taking a short position in American Express (AXP)

AXP Weekly bars

We haven't discussed many short opportunities for this portfolio as we've been in a relentless bull market for 3 years. However the price action on all timeframes suggests the trend is turning lower and now is a time to consider taking the other side of this market.

AXP has all the makings of a great risk/reward for our intermediate timeframe. The stock has traded in a 2-year Rounded Top formation and has recently broken below its major support lows. 

What is quite notable to me is how the range has tightened considerably since 2015, at the same time as Volume has increased well above the 3-year average. There has been an increased amount of trading activity in only a $5 price range. And price currently sits below all that volume and prior support. This is called overhead supply. 

All of the trades from 2015 are now underwater and will create selling pressure on rallies back into that key level near $78. As long as price stays below the prior range and resistance at $78 I want to be short this stock. 

Shorting stock is a different animal than trading Long. Moves come much faster to the downside and you have to be prepared to take profits quickly should the trade begin to change direction. It is because of this increased difficulty that short trades for this account will be few and far between. But when I find a setup as clear as this, with a Relatively weak stock, in a now downtrending market, we will take advantage of the opportunity. 

Again shorting stock is something many people are uncomfortable with. If you do not feel confident trading this way, please do not participate. Simply wait with a cash position until the market regains some health and new uptrending opportunities present themselves.

That's really all I have to share this week. I'm trying to enjoy the last few weeks of summer and will be spending most of the weekend outdoors. When the market is undecided I feel its best to give it room and let things play out.

Thanks for reading
-ZT