For Silver a dip to test near the midfork this week is the plan. A rounded top in a tight sideways range should follow after that dip. Once the rounded top is complete, a decline to test the September low is anticipated.
A top is probably in, or very close. Looking at the geometry, a decline to the green arrow seems possible into next week. That is approximately 1187 SPX.
In terms of timing, around Oct 31st to Nov 1st looks bearish in cycles, but starting around Nov 3rd looks surprisingly bullish from my work. Looking at the symmetry at point 6 (yellow) a dip down occurs after the top (from Right to Left). I think it may occur similarly this time as well.
Next week looks very volatile, and it is going to be important in terms of confirmation in my cycle theory.
Silver hit the orange line target today. Price and timing targets both were very accurate on this chart (link below). Upside looks minimal from here, and a quick dip to $30 or so looks possible into next week.
Bounced as suggested this morning with the fork lines doing a nice job of defining support levels:
"Wasn't surprising to see the bounce this morning since closed yesterday at some support. Now trading at the red line. Financials haven't followed through as much on the downside this morning. Looks like a short term bounce may set up again soon."
NDX is still underperforming though, and that is an issue in terms of sustainability of this rally. As well I have Oct 31st and Nov 1st flagged for potential weakness.
There is a comparison to 2008 that can be made with the pattern of trading so far in 2011. Despite the similarily, I do not see evidence that a 2008 style of crash is about to occur. The market has a mechanism of alternating patterns which look similar on the surface for a while, but produce a much different end result.
For example, many will remember the May-July 2009 Head and Shoulders failed pattern. Traders questioned the Head and Shoulders top during February to July this year, but unlike 2009, the bearish 2011 H&S pattern did complete and follow through this time in 2011.
This is 2011, not 2008, and the similarity can be useful for a period of time, but ultimately each should be treated as a unique situation.
While the current trading pattern in 2011 mimics 2008, the difference this time shows up in the cycles, and it shows in the sentiments. I remember 2008 clearly, and there were not many bears in the summer of 2008. Since summer 2011, bearish sentiments have built up quite high.
The 2008 pattern also reminds that bear market rallies can be deceptively sharp.
SPX bounced again today at the yellow midfork. The red upper fork line was also tested, and that is typically a very strong resistance.
The configuration of the turquoise fork looks complete and favourable for a decline now.
The symmetry to either side of the cycle line looks bearish. There should be a final plunge from 6 down to point 7 which is equivalent in the symmetry to the August panic lows. Notice that point 7 is below point 5.
The last week appears to be a broadening top formation - a sign of increased volatility to come.
Technically the Bear Flag is still in play. Price is approaching the red fork line, and this rally may be just another backtest of a broken Bear Flag.
Not only is this rally taking on an ominous tone, but the warning signs are mounting. Dare I say it...the "C" word....
Small Caps - RUT and Financials - Rifin have been weakening over August and September relative to SPX. In fact, on the last dip these indices tested the level equivalent to 960 SPX. The gap has been widening, and this is a warning to take very seriously.
There is a powerful convergence of timing cycles coming due on Oct 13th or 14th. Three different cycles have been shown, but there are many more examples.
The expectation is for a severe decline during this time frame.
Gold may see a final spike up in the near term. While it is my theory that the safe haven trade is unwinding, I do see a final scare potentially propelling Gold to a slight new high. After that, it should rapidly collapse.
$1,230 is a 2011 target. Gold is trading at a substantial premium to Gold Miners (GDX - in yellow), and that gap needs to be filled.
Silver already experienced a collapse at the end of September.
SPX closed just above the yellow fork line after bouncing on the line into the close. Since Friday's open Rifin - Financials and RUT - Small Caps have been underperforming. The indication is that the rally is weakening.
Next, I'll show the timing cycles due at the end of this week.
In the big picture the market may be forming a large triangle represented by the white lines. On the last dip, the market bounced at the red triangle apex and the yellow fork line. An undershoot of the yellow fork line is preferred so there still may be some downside to an estimated SPX 1044.
As far as timing, Oct 6th/7th looks weak. Oct 13th or 14th is the date I have flagged for a possible low.
This may seem to be a bearish outlook, but consider that from mid-October to Nov 14th looks extremely bullish in my cycle work.
Remember, I do not see the recent decline in Gold and Silver as a sign of building deflationary pressure. I see the decline as an unwinding of the safe haven trade. This is very bullish for SPX over a longer term.
The following is a possible route to a bottom for SPX. Important dates and geometry have been incorporated with a "best fit". The dates and prices are estimated. In the current volatile market, it is very difficult to be precise, and modifications may be required. Nevertheless it can be helpful to show a general view. It is always necessary to monitor behaviour of the market and fine tune in real time.
Last weekend I had suggested that the first week of October looked bearish (even though I was expecting a moderate bounce last week). We did see the moderate bounce last week, and now the current configuration appears bearish.
The analysis is further confirming that view. Earlier in September I had shown a comparison to NDX. At that time I had suggested that a firming in NDX relative to SPX was a positive indicator. Now NDX is weaker.
SPX appears poised to test below 1100 on this dip.