As I write this, large-cap stocks are struggling to post a gain for 2015. A cavalcade of factors has kept a lid on bullish enthusiasm over the past year, including the specter of Federal Reserve interest rate hikes, a meltdown in crude oil prices, turmoil in the bond market, worries over China, tepid corporate earnings growth, demanding valuations and a slowdown in U.S. economic vitality.
Stocks have largely skidded sideways over this time, save for a harrowing down-and-up event between August and October.
But with the New Year approaching, another bout of volatility looks likely, as measures of market breadth, momentum, strength and investor positioning all suggest the “Santa Claus effect” is about the only thing staving off a slide right now.
Along with energy and big-tech stocks, big banks are an area looking vulnerable to a fresh bout of weakness, as a number of iconic names in the space roll down out of three-month consolidation ranges after bonking on resistance from their summertime highs.
Here are three bank stocks to avoid or to consider as short plays.
Bank stocks to Avoid: Bank of America Corp (NYSE:BAC)
Bank of America (BAC) looks set for a quick drop back to its 200-day moving average after consolidating for the last three months just below the highs set back in July. A break of that support level will set up a return to the August lows.
Investors continue to be worried about sector revenue slowdowns in areas like trading, fixed income, currencies and commodities.
The company will report results on Jan. 19 before the bell. Analysts are looking for earnings of 33 cents per share on revenues of $20.8 billion.
I have recommended the BAC January $17 puts to my Edge Pro subscribers.
Bank Stocks to Avoid: Citigroup Inc (NYSE:C)
Citigroup (C) stock is in even worse shape than BAC, already trading below its 50-day and 200-day moving averages after topping in November well below the highs set in July.
The 20-day moving average has already dropped back through the 50-day and 200-day averages, flashing a sell signal for the first time since August.
The company will next report results on Jan. 15 before the bell. Analysts are looking for earnings of $1.17 per share on revenues of nearly $18 billion.
Bank Stocks to Avoid: Wells Fargo & Co (NYSE:WFC)
After peaking in November below its July high, Wells Fargo (WFC) shares are dipping their toes back below the 200-day moving average in what looks like the beginning of the end of its three-month trading range.
A break of support at $53 would set up a return to the August-October lows near $50.
The company will report results on Jan. 15 before the bell. Analysts are looking for earnings of $1.03 per share on revenues of $21.8 billion.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
