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Warning: Banks Could Be in Trouble

Lawrence Lewitinn
Talking Numbers
Warning: Banks Could Be in Trouble

As a host of banks report quarterly earnings over the next few days, is it time to put your money in banks or should you withdraw?

Using the Financial Select SPDR (the XLF) as a proxy for the health of the whole banking industry, things have been pretty good for the banks this year. Returns are over 18% in 2013 and up 38% over the past twelve months. Still, the financial service sector is only half its 2007 value.

And, there may be some volatility ahead in the next few months.

“The XLF is ready to make a move – a big move. Ten percent this quarter,” says CNBC contributor Abigail Doolittle, Technical Strategist at The Seaport Group. However, it can go in either direction, according to Doolittle, as she believes it will remain within a two-year rising wedge.

CNBC contributor Steve Cortes, Founder of Veracruz TJM, thinks it’s more definitive as to where banks are going – and that’s down.

“Banks are still largely housing plays,” says Cortes. “But when you look at housing stocks and housing-related stocks, they have actually lost leadership.”

“Housing is slowing and, because of that, I think the banks are an outright sell,” says Cortes. “I’m looking to get short XLF.”

To see what technical levels Doolittle thinks is next for the financials and to hear more of why Cortes is a bear, watch the video above.