One area of the market that’s starting to worry me quite a lot is financial stocks. To be certain, financials have been one of the most volatile sectors in the market this year. Right now, we are at an inflection point. As you can see here by the chart of the Financials Select Sector SPDR (XLF), the fund trades right in the middle of its 50- and 200-day moving averages.

What this tells me is that we could be in for either a major rebound in the segment, or a significant pullback to, perhaps, the August lows. If financial stocks tank, we will see the value of the S&P 500 plunge as well, as financials services companies make up nearly 17% of the index.

I put the chances of a big move in financials very high right now, and primarily because of the volatile swings we’ve seen throughout 2010. Of course, given the schizophrenic nature of this market, the next move for financials could go either way. The way I approach this sector is to look at it as a sort of barometer for the wider market’s next move. If we see financials break back above their 200-day average, we can declare a continuation of the bull market. If, however, we see a concerted move south, it could mean that the bear’s about to come out of his den.