Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.

The carnage continued in the markets worldwide yesterday. The euro zone bond credit spreads increased to their widest levels in history, and stocks followed in kind.

The S&P 500 fell 2.56%, closing not only below 1,270, but also below the June lows of 1,258. I highlighted the 1,270 level yesterday as a key area to watch for signs of further weakness, and the index sliced through it like a hot knife through butter. The head-and-shoulders pattern that I also pointed out yesterday works to an ultimate target near 1,180. I’m not saying we will reach those levels, but rather stating what this pattern’s ultimate textbook target would be for those that are interested.

The flight to safety was apparent in gold, as well as bonds, which rallied across the yield curve. Yields on 30-year U.S. Treasury bonds dropped below 4% for the first time in about nine months.

Further signs of the sprint to higher ground could be seen in the rally of the Swiss franc versus both the euro and the U.S. dollar. The Swiss franc has been on an insane rally in recent months (and years). And yesterday, it finally seemed to really hit the Swiss stock market (that strong currency ain’t kind on Swiss exports), which sank 4% for the day. 

Why am I pointing out all of this non-U.S. market stuff? Because in today’s global markets everything is connected, and failing to watch developments in markets around the world not only makes one miss opportunities, but is flat out dangerous.

The Russell 2000 small-cap index also fell hard yesterday, and closed below the 775 area, which had served as support all year. Small caps are important to watch, and the break of this support line is not to be ignored. 

Transportation stocks as measured by the iShares Dow Jones Transportation Average (NYSE:IYT) also carved through a key support area and doesn’t have much support anytime soon on the charts. Transports, like I usually point out, have leading characteristics to them, so watch them closely.

Utility stocks as measured by the Utilities Select Sector SPDR (NYSE:XLU) outperformed the broader market yesterday due to their non-cyclical nature, but still managed to take out the 2011 uptrend line. Again, this is not bullish.

The consumer discretionary sector as measured by the Consumer Discretionary Select Sector SPDR (NYSE:XLY) had a horrible day yesterday, and by slipping 3.78% made an aggressive move down toward the 2011 lows.

The relief rally I thought may be possible upon the passing of the debt deal hasn’t come to pass as of yet. Instead investors continue pricing in a potential rating downgrade ofU.S.debt. Economic indicators are also coming in weak as of late, which is not helping the bulls. 

It is important to remember, however, that the S&P 500 has now fallen for seven consecutive days, and while a rally at this stage won’t get us much above 1,320 in my opinion, investors may just buy the market for a little lift upon the news of a debt downgrade. That would be the move least expected by investors, and as such, we must give it a decent chance of coming to fruition.