The bank index($BKX) is looking ominous indeed. The weekly chart(above) shows a bearish engulfing candle or outside reversal bar. What is very disconcerting about this situation is that it has occurred under the 40 week MA which has acted as a lid on prices here. The bar last week prior formed a hammer or hanging man. Now compare this action to end of April early May, same thing a hanging man then a bearish engulfing followed by an 8.5% drop. I can't caution strongly enough that this is ominous for the market.
Now look at the financial spiders (XLF) where we can see huge bursts in volume coming in on down days, again NOT GOOD for those that listen to pom pom TV (CNBC). $34 and then $31 are the next stops for this train.
The Dow Jones financial index ($DJUSFN) paints pretty much the same picture with the trend line from the Oct of 2005 low being clearly broken.
Just as they (the market cheerleaders) downplayed the severity of the sub prime problem which is a misnomer since the sub prime cancer is spreading to the Alt-A arena, it is a housing bubble problem, they will downplay the lack of participation (nice term) of the financials. Do not be fooled and if it not a time to panic it is a least time for caution. Good luck and good trading to you.