Beware This Blue-Chip Stock Before Earnings

High-flying AXP stock could pull back next week, if history repeats

by Andrea Kramer

Published on Jan 11, 2018 at 10:50 AM

The U.S. stock market will be closed on Monday, Jan. 15, for Martin Luther King Jr. Day. If past is prologue, the S&P 500 Index (SPX) could be in for a rough holiday week, too. Below, we take a look at how the SPX tends to perform during MLK Week, and why buyers should beware blue-chip stock American Express Company (NYSE:AXP) ahead of earnings.

S&P Struggles During MLK Week

Since 1998, the S&P has averaged a loss of 0.6% during MLK Week, and has ended the week higher just 40% of the time. For comparison, the index has averaged an anytime one-week gain of 0.15% since 1998, with a win rate of 56.4%, according to Schaeffer's Senior Quantitative Analyst Rocky White.

SPX MLK Week since 1998

Best and Worst Stocks Next Week

Below are the 25 best and worst S&P 500 stocks during MLK week, looking back 10 years.

best SPX stocks MLK week

Worst SPX stocks MLK week

AXP Options Traders Bullish Ahead of Earnings

As you can see above, American Express stock is near the top of the Worst list, averaging a loss of 3.08% in MLK Week, and higher just 20% of the time. That represents the third-worst average return of all SPX stocks, and the worst return among Dow stocks. What's more, the blue chip is expected to report earnings on Thursday, Jan. 18.

AXP stock moved lower after the credit card concern's last two earnings releases, and dropped 0.6% the day after its January 2017 earnings showing. On average, the shares have moved 3.9% in the session after the last eight earnings reports, regardless of direction. This time around, options traders are pricing in a slightly more modest 3.7% swing for AXP, per at-the-money implied volatility data.

As far as direction, though, it seems recent option buyers are predicting higher highs for AXP. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 1.47 is in the 96th percentile of its annual range. This indicates that speculators have bought to open American Express call options over put options at a much faster-than-usual pace during the past two weeks.

However, looking at AXP's performance on the charts, it's not hard to see why the options crowd is optimistic. The shares have roughly doubled since their February 2016 lows, supported by their 10- and 32-week moving averages, and were last seen trading at $100.85. Just last week, American Express stock notched an all-time high of $101.65.

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