Bank of America (BAC) dropped to new lows Tuesday at $5.03, which was just below the Oct. 4 low of $5.13. BAC made a high at $15.31 on January 14 and is down 67% for the year. Though it is possible that the stock will respond positively to the S&P news, there is much work to be done before it can turn positive.

• There is first strong resistance at $6.00-$6.50 with major resistance at $7.43, which was the late-October high
• The RS line started a new downtrend in March and has continued to make new lows
• The RS broke support (line b) on Nov. 9, which preceded the new low in prices by almost two weeks
• Daily OBV formed a positive divergence at the October lows, line c, but this support has now been broken
• Weekly OBV (not shown) failed to move above its declining weighted moving average and has also made new lows

Citigroup (C) closed below its 61.8% Fibonacci support at $26.36 on Nov. 17, which warned of the recent decline. So far, it is holding above the October lows at $21.40 (line d) and had a yearly high of $51.50.

• The RS line broke support, line e, last week, which does project an eventual drop below the October lows
• The daily RS line would now need to surpass the October high to turn positive
• The OBV bottomed in August before forming higher lows in September. This bullish divergence support, line f, was also broken last week
• There is first resistance now at $27 with much stronger resistance in the $28.50-$30 area

What It Means: The stock index futures are sharply higher in early-Wednesday trading on news of coordinated action by the world’s main central banks to lower the interest rate on dollar swaps. Therefore, the S&P downgrade should have little effect on the stock market today.

Since late February (see “Don’t Bank on Bank of America, Citigroup”), the technical outlook for these two big banks has been negative and they should continue to be avoided.

How to Profit: A strong weekly close in the Spyder Trust (SPY) should set the stage for a further rally into the end of the year. As I mentioned last week, I continue to favor small-cap stocks as we head into January.

See related: 5 Small-Caps with Growth Potential

The market is still vulnerable to further Euro-induced shocks, so be sure to have your stops in place and don’t let a profitable position turn into a loss.