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

Banks stocks have been hot over the past year, with banks like JPMorgan Chase & Co. (JPM) rising by more than 26%. However, all is not well, because, JPMorgan, Bank of America Corp. (BAC), and Citigroup Inc. (C) are off their highs by 9% or more, and may be heading lower based on technical analysis, by 8% to 15%.

It was just a few weeks ago that the banks looked set to rise to even higher prices. But, falling interest rates, decelerating earnings growth and weak technicals threaten that rise. The KBW Nasdaq Bank Index rests on a major technical uptrend that has been in place since early 2016, and should that fail it would be a terrible sign for the group going forward. 

JPM Chart

JPM data by YCharts

KBW Bank Index

The KBW Bank Index chart looks technically weak. The 104.50 level is a critical technical support level. Should the index fall below that support level and uptrend, it would trigger a steep sell-off, and a decline to about 97, a drop of roughly 8.5%, from its current price of roughly 106. The relative strength index (RSI) is also around 34 and has been trending lower, suggesting the price may have even further to fall, until hitting oversold conditions, with the reading falling below 30. 

JPMorgan

JPMorgan is in the same situation as the broader index and faces a decline of about 11% falling to roughly $95.3 from its current price around $107, should shares of the stock drop below support and the uptrend at $106.5. The RSI for JPMorgan suggests the selling may not be done, with a reading of only 34. 

Bank of America, Citigroup

Bank of America may see its shares sink by as much as 11%, should it fail at its uptrend and support level around $29, to roughly $26. Meanwhile, Citigroup faces a drop of about 8% to around $61, from its current price of $66.35, if it drops below support at $65.90.

Weak Fundamentals

Fundamental factors are plaguing the banks as well, such as decelerating earnings growth in the coming year. JPMorgan is forecast to have earnings growth in 2018 of 31%, slow to only 7.8% in 2019, while Bank of America is seen slowing from 40% to 13.6%. Historically, the three major banks are all trading at their highest price to tangible book values since 2010. 

JPM Price to Tangible Book Value Chart

Additionally, the banks' rise over the past two years has been attributed to a rising interest rate environment. But the spread on Treasury rates, such as the 10-year minus 2-year, have contracted to only 45 bps. Additionally, yields on the 10-year Treasury have fallen materially from 3.11% to roughly 2.82%, a drop of nearly 30 bps just since May 17, putting the rising interest rate picture in doubt. 

There is no doubting the banks' stocks reversed in a significant way over the past few weeks. Now they are on the doorstep of facing even steeper losses. The coming days will be telling. 

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.