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

Bank stocks have had a tough few days, and more declines may be ahead.

Shares of the Financial Select Sector SPDR (XLF) have been trending lower, while the current trading pattern that's forming is suggesting a fall of as much 8 percent. Stocks of JPMorgan Chase & Co. (JPM), Citigroup Inc. (C), and Bank of America Corp. (BAC) are also confirming the setup in the financial ETF.

Shares of JPMorgan, Bank of America, and Citigroup have been trending lower, and the current trend suggests the three banks have more to fall in the days ahead. The pressure on the sector is likely due to the flattening of the yield curve, which means the bank's net interest margins could come under pressure. Banks earn interest income from borrowing short-term and lending long-term. When the yield curve flattens, the spreads contract. 

Reversal Pattern

The financial ETF is currently forming what appears to be a head and shoulders pattern. This technical pattern is known as a reversal pattern, and suggests the ETF could decline from its current levels of $26.15 to $24.25. That's a fall of nearly 8 percent. 

 

 

 

JPMorgan

JPMorgan shares are also in danger of falling nearly 10 percent should the stock continue to reverse. Shares appear to be heading toward $94, which would be a mild decline of 4 percent if the stock stops and holds its uptrend line.

However, a break of that trend sends shares lower to $87, down 10 percent from current levels. 

 

 

 

 

Citigroup

Citigroup's uptrend line is already in play, with the stock resting on the trend line at around $71.25. (See also: Citigroup Shares Year-End Rally Could Be Underway.)

A move lower in the stock from the current price likely sends it down about 8 percent to $65.75. 

 

 

 

Bank of America

Bank of America seems to be best positioned in this case because the shares have a good amount of space between its current price and the location of the uptrend.

Additionally, the stock recently broke out from a multi-year resistance level, one that should offer a great deal of support around $25.50, resulting in a decline of only 4 percent. 

 

 

 

The current setup in the financial stocks would suggest there is more room to fall in the near term. 

 

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.

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