Bank of America (NYSE: BAC) shares have been caught in a vicious downdraft this year with little relief in sight.
The banking giant’s stock has been an anchor around the neck of exchange traded funds tracking the financial sector that weight stocks by market capitalization.
Now, a technical analyst is warning that Financial Select Sector SPDR Fund (NYSEArca: XLF) recently suffered a so-called death cross. This bearish signal is triggered when the 50-day exponential moving average crosses below the 200-day.
“These signals are not reliable in sideways ranges but in downtrends they are have better success,” said Tarquin Coe at Investors Intelligence in a newsletter Wednesday.
“The XLF is in a well-defined downtrend channel off its February high. The recent pause is likely a bearish consolidation rather than a bottom,” he wrote. “The XLF fund also exhibits a strong relative downtrend against the market.”
Meanwhile, Bank of America is a sector underperformer by some 20% since the start of the year, the analyst noted. The stock accounts for about 6% of the financial ETF.
A death cross often “represents a bearish technical signal warning of further downside,” Briefing.com said Wednesday. “However, we would note that the last occurrence back in the summer of 2010 marked a near bottom for the space as XLF began a strong uptrend in late August.”
