When you take the time to study what's taking place at any given moment in time in this crazy game we call the stock market, you need to look no further than the behavior in the financial banks. They will happily tell you what's taking place if you allow yourself to listen. To understand the banks you need to look at the CBOE Interest Rate 10-Year T Note ($TNX). Rates are on a straight decline lower. The treasury yield is ignoring the latest rate hike by the Fed, which tells us the picture it's painting is one of deflation.

Plain and simple. Deflation, and with deflation, comes a market that's not particularly happy. The banks are in free fall. A true free fall over the past month, or so, and showing no signs of recovery. If the banks aren't leading the market higher all you're likely to see are strong oversold bounces or bounces that come from short-term, positive divergences on the index charts. The banks need to strengthen up, and do so in a big way consistently, before thinking the worst is over. Their behavior is very similar to what we saw in 2008 before the big market crash down as the year moved along.

That's not to say this is guarantee to repeat itself again this year, but it is similar in many ways, and should be a concern for all the bulls out there. There are going to be loads of rally days, or even days, thus, it's important to remember that nothing, and I mean nothing, is straight down. But the trend is clearly lower for this market, and that trend is definitely being led down by the banks as rates continue to blast down. Until that trend changes, it's trouble for the banks. When the banks are in trouble the market in general is in trouble. Now remember, this means trouble. It does not mean crash. Markets basically never crash. They methodically break your heart. I do not expect a crash at all. Just an overall, continued trend lower for some time to come, with again, lots and lots of up times to keep things interesting.

Today we saw a late day hammer ahead of the Fed meeting in front of congress that begins tomorrow. The bulls are probably holding on to some hope, but the fact that some short-term charts got very oversold probably helped more than anything to get that hammer. The move off the top has been quite intense over a very short period of time, but now the bulls have to deal with, not only eight open gap down, but just trying to get through this one today won't be so easy as it's quite large. Spy 187.95 is the top of the gap down, so before the bulls get too excited, let's see if they can first take out that key level of resistance on a closing basis, and only then can they start thinking about bigger and better things, all of which will be tough as well. Gaps and downward-sloping moving averages will make things tough for sure on those bulls, so be careful getting too excited about bounces. Also the bulls are dealing with daily oscillators that are no longer oversold, so you can't count on anything more than those very short-term, oversold oscillators to help out. So we'll probably see some upward movement tomorrow, but remember to watch 187.95 as that key resistance level very short-term.

Trying to capture oversold, individual stocks is tough in this type of environment simply because the level of oversold varies from stock to stock and from sector to sector. Some stocks may have to get extremely oversold and others just a bit. Trying to know where strength will be found is really tough. You have to try to not get disappointed if you miss a rally. Predicting the rally is very tough. Many have tried and failed as the market or individual stocks did not adhere to normal behavior now that the market is down trending. So many have lost on trying to catch that elusive bottom. You don't have to be perfect in this game. That's not the goal. The point is to understand the trend and stick mostly, if not completely, with it. Everyone wants to make the ultimate bottom call. While we can surely bounce, and bounce decently, for a while there is nothing suggesting the worst is over. Down-trending markets take time. They're tough on the nerves. Try to relax, and let's see if we can find a better bottom to play over time.

In time, I do believe we'll take out the most recent low at S&P 500 1812, but you never know, for sure, of course. Just my belief, but it doesn't have to happen now. A day at a time with a likely bounce on the way if today's late hammer means anything.

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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