BANK INDEX HITS FIVE-YEAR LOW -- THE S&P 500 IS IN DANGER OF BREAKING 50-DAY AVERAGE -- BOND ETF BOUNCES OFF 200-DAY LINE

BANK INDEX HITS FIVE-YEAR LOW... The market has suddenly taken a turn for the worse. I suspect part of the reason for the afternoon selling has to do with the fact that the PHLX Bank Index is on the verge of closing at a new five-year low. Chart 1 shows the BKX testing the lower end of an apparent "descending triangle". [A descending triangle is contained by a falling upper line and a flat lower line. It's usually a bearish pattern). Financials stocks are once again the day's weakest sector.

Chart 1

S&P 500 IS TRADING BELOW 50-DAY LINE ... After a morning bounce, the major stock averages are experiencing afternoon selling. Chart 2 shows the Dow Industrials falling to a new two-month low. Chart 3 shows the S&P 500 trading below its 50-day moving average. A close below that line would confirm that the short-term trend has peaked.

Chart 2

Chart 3

BOND YIELDS ARE SLIPPING ... Bonds are bouncing as stocks sell off. That has pushed the 10-Year T-Note Yield back below its February peak and its 200-day moving average (Chart 4). That alleviates some recent fears of a serious upturn in bond yields (and a flight out of bonds). Chart 5 shows the 7-10 Year Treasury Bond Fund bouncing off its 200-day average. Commodities are on the defensive today largely owing to a bounce in the dollar. Mr. Bernanke's comment that the Fed and Treasury were monitoring recent weakness in the greenback has pushed it higher today. That's causing some selling in gold and oil.

Chart 4

Chart 5