(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Banks stocks have been a significant disappointment so far in 2018 dropping by almost 2% as measured by the Invesco KBW Bank ETF (KBWB)—a proxy for the KBW NASDAQ Bank Index. The poor performance comes against the backdrop of an S&P 500 which is up by almost 9% on the year. But it may still be about to get much worse for the group, with the ETF falling by as much as 7% further based on technical analysis

Stocks such as US Bancorp (USB) and Bank of New York Mellon Corp. (BK) have fallen by 9% and 12% from their highs, respectively. Even worse is that Wells Fargo & Co. (WFC) has fallen by over 20% from its highs. But each face even steeper declines ahead. The banks have struggled as a group of investors have worried about a flattening yield curve and the potential impact it may have on their profits. (For more, see also: Why Big Bank Stocks Are About to Crumble.)

Bank Index

The KBW Bank Index is sitting on a technical level of support at 104.60. Should the index drop below that level of support, the index could drop to 97.20. The relative strength index (RSI) has been trending lower for the index since peaking at overbought levels in late January. This suggests the bullish momentum is leaving the index. 

Bank of New York Mellon

Bank of New York Mellon is facing steeper declines from its current stock price of around $51. Technical support is around a price of $50.50 and should the stock fall below that support price they may fall as low as $47 a decline of almost 8%.

Wells Fargo

Wells Fargo stock has fallen dramatically since peaking almost $66 in late January. Now the stock is sitting on a technical support level around a price of $52.50. Should the stock fall below that level of technical support it could drop all the way to $49.25 a drop of more than 6%. (For more, see also: Wells Fargo Shares May Drop By 9% As Estimates Fall.)

US Bancorp

US Bancorp may decline by 6% as well in the coming weeks from its current price around $52.80. The strongest level of technical support for the stock rests around a price of $49.60. 

The outlook for the banks looks grim but if the yield curve begins to steepen due to rising levels of inflation, then banks would be a big beneficiary and likely rally sharply off their lows. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.