As the second week of big bank earnings kicks off one technician warns the group could be on the verge of a collapse.
On Friday, a slew of big names including JPMorgan, Citigroup and Wells Fargo reported first-quarter results. Despite beating on the top and bottom lines, shares of all three financial institutions closed lower on the session. Bank of America saw a similar fate on Monday, the company beat on both EPS and revenue, but was down 1 percent during the session.
Chart master Carter Worth of Cornerstone Macro says a key technical breakdown in the space could signal even more trouble ahead.
Worth first alludes to a longer-term chart highlighting an underperformance of the KBW Bank Index versus the .
Since its peak in 2007, the bank index has fallen just over a percent, while the broader market has surged more than 70 percent.
"The thought might be that one could play [the banks] for a catch up," Worth said Friday on CNBC's "Options Action." "But in fact, of late, not only is [the KBW] not catching up, it's underperforming the market, even on the here-and-now basis."
The financials sector was one of the top performers following the 2016 election, rallying off the prospect of deregulation, rising interest rates and tax reform. Worth's analysis shows that in spite of the surge, the group has been "much below" market performance.
In the past month, financials have struggled to make gains, down nearly 5 percent and the worst-performing sector in the S&P.
The KBW index, which acts as a key benchmark for the banking sector, is still up more than 21 percent in the past year.
However, Worth's analysis illustrates that while the index has successfully bounced higher off its trend line during that period, "individual equities one at a time are undercutting" the support.
"Citi has already done it and certain others," Worth warned, "so the presumption is that the whole index is going to break."
Of the big banks set to report this week, Worth advises investors to keep a close eye on Morgan Stanley. The New York-based financial firm has also rallied in the past year, up more than 32 percent; however, the stock has recently begun to dip below its upward trendline support around the $50 level.
"Morgan Stanley is on the radar here," Worth said. "I think it will break [this] week; [I'm a] seller."
Morgan Stanley is set to report first-quarter earnings before the bell on Wednesday. Shares were trading higher early Monday afternoon, around $53.64.