6 financial stocks signal lasting weakness

By Jeff White

While the Nasdaq Composite Index

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+2.46%

hopes for better price action from tech stocks like Apple, Inc.

/quotes/zigman/68270/quotes/nls/aapl AAPL
+5.83%

and Facebook, Inc.

/quotes/zigman/9962609/quotes/nls/fb FB
-10.99%

, the SP 500

/quotes/zigman/3870025 SPX
+1.60%

really needs leadership from the financials—something that's been severely lacking for almost two months. Even Monday, despite strength elsewhere, the financials lagged considerably.

In terms of sector weighting for the SP 500, the financials make up nearly one-fifth of the index. That places great importance on the health of banks and brokerage stocks, making it quite difficult for the SP to rally much without their participation.

The SP peaked on April 2, but several financial stocks topped prior to that date. They're called “leaders” for a reason. Let's review some key names from the financial sector, beginning with a few of the major banks.

Bank of America Corp.

/quotes/zigman/190927/quotes/nls/bac BAC
-2.71%

topped March 19th, two full weeks ahead of the SP's high. Since then, the stock has shed 33% and just marked a four-month low on Monday. The buyers remain uninterested, and the downtrend continues.

Citigroup

/quotes/zigman/5065548/quotes/nls/c C
+0.92%

topped March 19 as well, and has since given up 32%. Monday's low was the lowest level seen in five months, reminding us that when lower highs and lower lows are intact, it's best to stand aside.

J.P. Morgan Chase and Co.

/quotes/zigman/272085/quotes/nls/jpm JPM
-2.93%

peaked March 27, and since then the stock has dropped by over 30%. Although recent concerns surrounding a major trading loss have accelerated the decline, the stock was already in correction mode before the SP turned lower. It made a five-month low on Monday and continues to seek buyers.

Goldman Sachs Group Inc

/quotes/zigman/188479/quotes/nls/gs GS
+1.07%

peaked on March 27, four sessions before the SP marked its high on April 2. By the time the SP created its lower high on May 1 of about 1% off the peak, GS had shed 10%.

From its March high, the stock had lost some 27% to Monday's low to reach levels not seen in 4 1/2 months. It was able to rebound from the lows of the day, but still lacks the positive character change it will need in order to reverse higher. Clearly, this is another financial leadership stock which cannot be ignored.

Morgan Stanley

/quotes/zigman/182639/quotes/nls/ms MS
-1.20%

topped March 26, one week prior to the SP's top, and is still sliding here despite having already lost 38%. New 6-month lows were made on Monday after the stock marked its seventh straight decline, offering an example of why paying attention to the trend can help avoid pain.

Even the mutual fund powerhouse Janus Capital Group Inc.

/quotes/zigman/316841/quotes/nls/jns JNS
+3.37%

topped prior to the SP, suggesting money was not only flowing out of the stock but out of the market as well. Since then it's off nearly 28%

While it's plain to see that the financials provided plenty of early warning signals when the market started to get toppy, it's also evident here that these stocks remain in correction mode. Each of them are still showing lower highs and lower lows, and therefore have yet to stabilize. Until some support is found in this group, a lasting turn higher is unlikely for the financials, and perhaps also for the SP.

Needless to say, it's a good time to remain selective—at least until the financials start to shape up.

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