Financials are under pressure and could test key levels this week. Wells Fargo ( WFC) shares are trading down $1.56 to $25.11 and weighing on the sector after the bank reported quarterly earnings of $0.72 per share on $19.63 billion in revenues. Analysts were expecting $0.73 on $20.34 billion. Citigroup ( C) also slipped on earnings in pre-market action, but was recently up $0.60 to $29.

Still, Financial Select Sector SPDR ( XLF), which tracks all of the financial names from the S&P 500, is down $0.10 to $12.50. Shares performed well since October 3 and are up 10.5% over the past two weeks. Now, XLF is facing an important support level at $12.50, which coincides with a 50-day moving average. Beyond that, the next area of support is around the August low or $12.

One player in the options market seems concerned that the $12 level won't hold for the XLF and initiated a massive November 10 - 12 put spread on the exchange-traded fund Friday. Shares were at $12.65 and 108,000 November 12 puts were bought for $0.44 while 108,000 November 10 puts sold at $0.08. The spread, for a $0.36 net debit, has a downside breakeven at $11.64 (-6.9%) at the expiration and a potential $1.64 profit if shares fall to $10 (-20%).

I already have a bearish position open in the XLF and highlighted the issues banks are facing in an October 6th Hot Topic. Given the bleak outlook, I would feel comfortable adding to that December 13 - 14 call spread, which was sold for a $0.27 credit. Focus next turns to Goldman Sachs ( GS) and Bank of America ( BAC). Both release earnings tomorrow morning. If results disappoint, watch XLF and that key $12.00- 12.50 area. It has implications for, not just banks and brokers, but the market as a whole.

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At the time of publication, Henry Schwartz held no positions in the stocks or issues mentioned.