European banks are facing a make-or-break moment.
Fears of slowing economic growth, negative rates, and geopolitical uncertainty in Italy and the U.K. have ravaged the Stoxx Europe banks index, pulling it down to a support level touched in 2011 and in 2016. It had not broken below that support since the financial crisis lows.
It could happen this time, according to Ari Wald, head of technical analysis at Oppenheimer, who is sounding a warning against the group.
"Just continue to stay away from European banks," Wald said on CNBC's "Trading Nation " on Monday. "While the representative index is still above its low from 2011, I think a more recent breach of its low from 2018, December of last year, is marking a potential resumption of Europe banks long-term downtrend."
The STOXX Europe banks index, which holds financials stocks including Barclays, Credit Suisse and Deutsche Bank, is down more than 8% this month. It broke below its December lows at the beginning of August.
"While this surely isn't a positive for global risk, I will point out that over the 10 years, the S&P 500 is still up 180% against what has been a 65% hair clip in Europe banks," added Wald. "It does reinforce our view that the U.S. should continue to outperform versus Europe and growth should continue to outperform versus value."
Gina Sanchez, CEO of Chantico Global, says systemic risk for the European banks remain at large.
"If you look at the fundamentals of what happened in Europe after the crisis and for the last decade versus the U.S., the U.S. was very quick to write down bad debt and recapitalize the banks whereas Europe tended to 'ringfence' a lot of this bad sovereign debt but they left it on the banks as part of the bank capital, and that means that the banks themselves are not nearly as strong," said Sanchez.
The STOXX Europe banks has fallen 45% over the past 10 years, while the U.S.-focused KBE bank ETF has added 86%.
Low to negative interest rates in Europe and a flat yield curve means European bank profitability will remain under pressure and keep these stocks unattractive, says Sanchez.
"That's not a great place to be operating as a bank, and Europe is slowing down, so all of those things sort of come to this picture that Europe doesn't look good," she said. "I still think that the long-term trend is that it's going to be hard for them to make money."