(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
The banks have had a strong start in 2018 with the KBW NASDAQ Bank Index rising by approximately 6.5%, versus an S&P 500 up only 1.6%. But the banks are now showing signs of a group that could be moving lower over the short term. Bank of America Corp. (BAC), Citigroup Inc. (C) and Well Fargo & Co. (WFC) could all come under pressure should the group begin to retreat. An analysis of the three technical charts shows they all have the potential of falling by roughly 10% or more.
Shares of the banks have been boosted on the outlook of a Federal Reserve that has been raising short-term interest. But recent news that the U.S. may impose tariffs on steel and aluminum imports has made investors skittish, and now the banks appear they too may not be immune from the rising geopolitical risk.
Bank of America
Bank of America shares have now topped out twice around $32.60, and that could be the making of a double top formation. A double top is created when a stock reaches its previous peak, but is unable to rise above it, and is followed by a decline, the pattern is known as a bearish reversal. Meanwhile, the chart also shows that the stock is now trending lower, and should it be the case, the stock could see its shares fall to nearly $28.75, a decline of 12% from current levels.
Citigroup is also facing short-term challenges, that could send shares lower towards $66, a decline of just over 10% from its current price around $73.70. Citigroup is facing a downtrend that has been pushing shares lower since its peak in late January. Meanwhile, the relative strength index (RSI) has also been trending lower as well, and has yet to reach oversold levels, which would come should it fall below 30. (For more, see also: Citigroup: A Dividend Analysis.)
Wells Fargo's technical setup appears to be relatively weak as well, with a stock that could be heading lower towards $51, a decline of about 10% from its current price around $56.50. The chart has turned decisively bearish since the Fed ordered the bank to stop growing its assets. The technical setup in the chart does not present the stock with a meaningful technical support level until it gets to approximately $51, and it would seem like a spot for the stock to rebuild its base.
The bank stocks are yet another sector of the broader stock market that are showing signs of heading lower.
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 holdings. Information 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.