Traders have been looking for some signs of stabilization among the financial sector.  That is ground zero for the crisis of confidence we're suffering through, and some basis of support there would seem to lend some to the broader market as well.

The past couple of days have been encouraging, as the BKX Banking Index rose more than 10% on Tuesday, and then managed to follow through with an additional gain of more than 2% yesterday. The banks have been the subject of much speculation about nationalization.

Bank stocks recovered from an earlier swoon after U.S. banking regulators laid out terms of a stress test program to assess the ability of the largest lenders to cope with the possibility of a deeper recession.
 
We have seen this kind of pop-then-follow-through before, several times recently.  And based on the chart below of those previous occurrences, we'd better see a change in behavior quickly, or we're in for some pain. The recent occurrences took place on 9/18-9/19, 9/30-10/1, 11/24-11/25 & 2/5/09-2/6/09. Over the next 7 sessions, the previous instances led to a negative return in the BKX each time. The average 7 day return for the BKX Index after each pop and follow through was about -15%. And the average 7 day return for the S&P 500 for the same period was about negative -8%.
 
The good news, I suppose, is that we should find out relatively quickly if we're on the cusp of yet another miserable failure.  The BKX topped out in short order after the other occurrences, within 4 trading days each time.  Three of them topped out the very day of the +2% gain.
 
The conclusion seems pretty clear - if we can manage to last into the end of next week without violating yesterday's low in the BKX, then we'll have likely seen a change in character from what we've experienced previously during this bear market.  And a change in character from the banking sector can only be good news for the rest of the market at this point.
 
So it seems like we're at or very close to another moment of truth here.  The sign of stabilization in banks, at least as determined by a rise in their share prices over the past couple of days, seems encouraging, but we'd better have a clear grasp of recent history, and that history isn’t pretty.  If we slip below yesterday's lows in the BKX and S&P, then it'll look more and more like we're just slipping into the same pattern of heavy selling and ultimately new lows.

Note: I do not own any stocks in the BKX Index