Mega-broker The Charles Schwab Corporation (SCHW) ignited an industry "fee war" on Oct. 1 when it reduced commissions for online stock, exchange-traded fund (ETF), and options trades to zero. Competitors quickly matched the initiative, also choosing to build revenues through add-on services and order flow rather than picking their clients' pockets. The market reacted quickly to the news, dumping shares of Schwab, TD Ameritrade Holding Corporation (AMTD), and E*TRADE Financial Corporation (ETFC) to multi-year lows.

Heavy competition from Robinhood and other "trade for free" startups has forced the nation's top brokers to follow suit, but long-suffering shareholders are paying a steep price. Schwab attempted to ease shareholders' anxiety earlier this week when the company reported higher-than-expected third quarter earnings and maintained healthy full-year guidance. Even so, the news has failed to alleviate the latest round of technical damage, predicting even lower stock prices in coming months.

Chart showing the share price performance of The Charles Schwab Corporation (SCHW)

Charles Schwab topped out in the lower $50s in 1999, following a multi-year uptrend, and fell to a six-year low in 2003. A slow-motion uptick finally completed a round trip into the prior century's high in the fourth quarter of 2017, generating an immediate breakout that posted an all-time high at $60.22 in June 2018. It has been all downhill since that time, with the stock giving up more than 40% of its value into early October's 35-month low at $34.58.

The downturn failed the breakout above the 1999 high while reinforcing long-term resistance near $50. More importantly, it's now likely that the stock has printed the highest high for this economic cycle and has entered a downtrend that could last for several more years. The July breakdown through the 50-month exponential moving average (EMA) adds weight to this bearish call, marking the first violation of this key support level since 2008.

The decline has just reached the 50% retracement of the 2011 into 2018 uptrend above $35, which is narrowly aligned with the .618 retracement of the smaller-scale 2016 into 2018 uptrend. However, the .618/.786 alignment between those rally waves looks like a more logical target, suggesting that the decline will reach the upper $20s and tag the 200-month EMA before attracting committed buyers.

Chart showing the share price performance of E*TRADE Financial Corporation (ETFC)

E*TRADE will write the next chapter in this developing story when it reports earnings after Thursday's closing bell. Wall Street analysts currently expect the New York-based company to post a profit of $1.02 per share on $743 million in third quarter revenues. Positive price action after weaker-than-expected metrics may be instructive, pointing to oversold technical readings that may limit short-term downside.

The stock posted an all-time high at $722.50 in 1999, adjusted for 2010's 1-for-10 reverse split, and dropped to $28.10 in 2002. A healthy recovery wave topped out above $260 in 2006, giving way to a pullback that accelerated into a near-death spiral during the 2008 economic collapse. It finally bottomed out at $5.90 in 2009 but failed to bounce strongly and tested the low repeatedly between 2011 and 2013.

The uptrend into 2018 ended at 200-month EMA resistance, giving way to a two-legged decline that has now reached the lowest low since June 2017. E*TRADE stock is also trading at the 50% retracement of the longer-term uptrend, a common reversal zone, but the monthly stochastics oscillator is engaged in a bearish cycle that is now accelerating toward the oversold zone. This trajectory lowers the odds that the downtick that started in 2018 has come to an end.

The Bottom Line

The nation's largest online brokers have sold off to multi-year lows after dropping their commissions to zero, and the stocks show no signs of bottoming out.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.