The Long-Term Risk. There are two traditional rules of thumb to measure the potential downside risk in a bear market. The first one states that a bear market has to be a bigger decline than the biggest correction of the prior bull market. In this case, that “biggest correction” was last year's decline of 21.6% -- and a 21.6% decline here would take the S&P to 1115. In addition, legendary analyst Stan Berge maintained that bear markets always break the first intermediate low of the prior bull market. The first intermediate low in this bull market was made in mid-2010, with the S&P at 1010. There is thus a good possibility – not 100%, but not zero either – that the S&P will trade both below 1100 and below 1000 before it makes its next Four-Year Cycle bottom that's due in the first half of next year. Investors of all shapes and sizes need to consider this possibility – very, very carefully.

Eoin Treacy's view A mantra from The Chart Seminar is that we can only deal with the reality provided by the market. Rather than attempt to anticipate at what the level the S&P is likely to trade we prefer to monitor consistency characteristics for signs of change.

The Index has returned to a natural area of consolidation, represented by the April peak near 1425, and investors are asking what next? As we have maintained at Fullermoney since June, if the benefit of the doubt is to continue to be given to the upside, the progression of higher reaction lows from above 1200 will need to hold. The S&P 500 has paused mostly above 1400 for a month and has some room in which to consolidate following the impressive advance in August. A sustained move below 1350 would be the minimum requirement to question potential for continued higher to lateral ranging.


Silver miners – Silver hit at least a medium-term peak near $50 in April 2011 and almost halved by October. It has found support above the psychological $25 area on three separate occasions over the last year and is currently staging another rally from that area. A sustained move above $35 will confirm a return to medium-term demand dominance. During what has been a challenging environment for metal prices, silver miners have underperformed by a considerable margin. However, considering the more positive performance of gold on this occasion, the odds have improved that silver may be able to successfully break above $35 on this attempt which should be positive for the respective mining sector.

Fresnillo (2.15%) caught my attention yesterday as the biggest positive mover on the FTSE-100. The share hit a medium-term peak a year ago and pulled back sharply. Following the initial abrupt drop, it has remained in a volatile range but found support in region of the 2011 lows near 1300p from June and has held a progression of higher reaction lows since. A sustained move below 1500p would now be required to question medium-term scope for continued higher to lateral ranging.

Hecla Mining, a constituent of the NYSE Arca Gold Bugs Index, rallied to break the 20-month downtrend three weeks ago and a sustained move below $5 would be the minimum required to question recovery potential. (Also see Comment of the Day on August 22nd) .

MAG Silver hit a medium-term low late last year and found support above it in May. It has held a progression of higher reaction lows since and is currently testing the March high near $10. A sustained move below $9 would be required to question medium-term scope for continued higher to lateral ranging.

Silver Wheaton, SilverCorp, Endeavour Silver, First Majestic Silver, Silver Standard Resources, Coeur d'Alene, and Pan American Silver have all posted progressions of lower rally highs since hitting medium-term peaks in 2011. They have all staged impressive rallies over the last few weeks and are becoming somewhat overbought in the short term. A number are pressuring their respective downtrends and breaks in their sequences of lower highs would bolster the case for returns to medium-term demand dominance. Fortuna Silver Mines is outperforming in this respect.