Financials are staging a rebound after posting five straight months of losses, and a top technician says there’s one name in the group that looks like a safe bet into earnings season.
Financials were surging Monday, with the XLF ETF that tracks the space jumping 2 percent. Despite the gains, financials are still down more than 2 percent this year as the threat of the flattening yield curve has put pressure on the rate-sensitive sector.
However according to Carter Worth, head of technical analysis at Cornerstone Macro, there’s something in the charts signaling big gains ahead for Dow component American Express.
The stock has soared more than 18 percent in the last 12 months, more than doubling that of the broader financials sector which is up just 8 percent in the same time period.
Despite the run-up, American Express is still down 3 percent from its May high of $103.24. However Worth’s charting reveals that shares of AmEx are inching closer to its upward trendline where the stock has recurrently bounced higher from.
“I think is a very important stock obviously, and it’s a stock that I want to be in in an area that’s not good,” Worth said Friday on CNBC’s “Options Action.”
It’s been a tough year for the financials, now down 10 percent from their 52-week high of $30.17 and recently posting five straight months of losses — an occurrence that’s only happened five times in its trading history.
According to Worth’s analysis, this rare pattern of declines have often been followed by more pain in the weeks to come.
“The odds of [financials] being down are pretty high,” Worth said. “It’s a bad area of the market. I think at this point that’s pretty clear.”
Nonetheless, Worth’s analysis illustrates that relative to the lagging financials sector, shares of American Express have created a bullish cup-and-handle formation indicating a “perspective break out” ahead for shares of the credit card company.
Moreover, Worth draws attention to the general outperformance of American Express. The stock is up 63 percent since 2016, compared to a 46 percent gain in the financial sector and 30 percent gain in the broader market.
“[American Express] looks like it’s in fact going to break out and go higher. I think this is a place to be if you need to be in a financials now,” he said.
Shares of American Express were trading higher Monday afternoon, around $99.91