On the day that traders returned from the long Labor Day weekend, several indexes tracking bank stocks broke down. It seemed to be the last straw in a banking sector that was already lagging. Indeed, the stock market rallied most of the year without any help from banks at all.

However, within just a few days, major bank stock indexes turned around and started to climb. We can thank technical factors. We can also credit a similar upside reversal in long-term interest rates.

Specifically, bank sector exchange-traded funds, including the SPDR S&P Bank ETF (NYSEARCA:KBE) reversed course to head back up. Score that a win for the bulls.

And now that Federal Reserve clarified its plans to normalize interest rates and pare back its balance sheets it seems that the bullish reversal was confirmed. Banks are back.

To be sure, they still lag the broader market but in the halls of technical analysis, failed breakdowns usually become bullish indicators. That’s what we have here.

The benchmark KBW Nasdaq Bank Index (INDEXNASDAQ:BKX) did not break support earlier this month and actually failed to trade all the way down to it. This is another technical failure of a bearish action and it, too, becomes bullish. In fact, the index is already back above its key moving averages and seems poised to keep the good times rolling.

But there is more to the bullish turnaround that technical action. Interest rates also have changed direction and it began even before the Fed’s meeting this week. The 10-year Treasury note yield also scored a breakdown earlier this month and it, too, reversed course to the upside.

Since it was well known that the Fed was interested in pushing short-term rates back up, whether or not it was to happen this month, we would expect the longer end of the bond market to respond with higher rates. That they continued to fall was a bad signal about the market’s confidence in the economy and in Washington.

The falling 10-year rate also had other implications. Since it fell as shorter rates held more or less steady the difference in yield between them got narrower. This resulted in a flatter yield curve and that can directly impact bank profits. Banks borrow at low short-term rates and lend at higher long-term rates. They make their profit on the spread, or difference between the two.

When traders talk of the yield curve, they often mean the difference in yield between the 2-year and 10-year notes. When the yield curve is flat, meaning short- and long-term rates are the same, it is often a harbinger of a pending recession. The current curve is not flat enough to create that fear but as September began it did fall to its narrowest, or flattest, condition since 2007. That was indeed a concern.

The good news is that the spread widened a bit since then to give banks more of a break. JPMorgan Chase & Co. (NYSE:JPM) responded by notching a new closing high for the year. Citigroup Inc (NYSE:C) broke out to new highs several days ago. And Bank of New York Mellon Corp (NYSE:BK) has a nicely formed upside breakout from its corrective decline.

We need to be aware that there are a few factors in the market that can scuttle any new rally, whither in banks or the broad market. Not the least of which is seasonally scary September-October period. And for technical analysis wonks, this is also the seventh year of the decennial cycle that historically adds additional risk for investors. We’ve seen market declines in 2007, 1997, 1987 and 1977, just to name the most recent.

However, conditions currently seem favorable for banks so follow the market’s message and just keep an eye out just in case the bears start to wake up.