The State of the Trend
Let's state the obvious first: the trend for the major indices (DJIA, SPX, NDX) is up in all three time frames (daily, weekly and monthly).
QE3 kicked off in November '12, and its first leg lasted until Bernanke decided to conduct a little experiment by mentioning taper in the Summer of '13. The second leg of the QE3 rally began at the end of June '13, when taper was dismissed as just crazy talk. So far the second leg of the rally is matching the trend and magnitude of the first leg pretty closely (look at the "2013 -" shaded rectangle), and points to a target of 1900:
There is another commonality, though. Now, just like in May '13, the SPX is trading at the upper channel line defining the whole '09 - '13 rally. So the question at this juncture becomes whether the SPX will break above that channel, and continue on the trajectory started in November '12, or will taper concerns, once again, derail the continuation of the rally and keep it confined within the broader channel lines:
We'll come to that question later, but first let's take a look at gold and silver.
Since last Summer, gold and silver have tried to rebound and are currently completing a triangle pattern which, according to classical TA, is considered a continuation pattern.
In addition, both metals remain confined within a broader and a narrower descending channel, and are testing critical support levels. For gold that is 123.62:
While for silver the level is 20.70:
So there we have it. The future direction of the indices and the metals depends on the investment public's perception about the imminence of taper. Not surprisingly, there is a vast camp that believes that the economy is getting stronger, and the Fed will have to taper. There is an equally vociferous camp that argues that the Fed finds itself in a liquidity trap and cannot taper, ever. But let's not forget those who think that the Fed will be forced to taper, sooner rather than later, and whether they like it or not. And last, but not least, how about the Fed itself, probably thinking they can get out of this mess scot-free.
The suspense is killing us. All we know for certain is that the trend for the indices is up, and for the metals -- down. For the rest, we won't have to wait long to find out the answer. Both the indices and the metals are at an inflection point, and as early as next week will have to tip their hand.