NEW YORK (TheStreet) -- The Dow Jones Industrial Average lost 1,000 points last week, which was the worst single-week decline since August 2011. Today, the markets opened down 1,000 points. 

Friday's loss of 530 points was the worst single-day decline since August 2011. The Thursday and Friday losses of more than 300 points each day were the first back-to-back -300 point days since November 2008.  

This is the kind of volatility that the Decision Support Engine warned about in this Aug. 7 article, when the CBOE Volatility Index, or VIX, closed around 13. The last sentence of that article said, "... buying volatility/fear (or selling stocks) is optimal." The chart in that article showed a resistance zone for the VIX between 25 and 31, and Friday's close of 28 has achieved that forecast. 

Now the VIX is at the upper five-standard-deviation band, which is statistically impossible to maintain for more than about five to 21 hours.

Therefore, early this week, good news will arrive out of the blue and stocks will bounce. That will be the chance for those caught in the "uh-oh" moment of the past month or two to get out of stocks and avoid repeating (or worse) the painful days of 2008.  

This monthly bar chart of the Dow is zoomed in to show only the price activity from the early 2000 peak to a time window around three years from now.  

That time factor is about the same duration as that of the 2002 crash. The price targets are a bit more complicated to explain in this venue, but suffice it to say there are strong, repeating, historic precedence for each of the green ovals of varying color intensity.  

The first zone is noted at the "minimum" target of the anticipated decline, and would catch not only the 2011 low, but also the 2010 low as well. In a more complicated declining pattern than the one illustrated with blue arrows, 10,500 would be tested, followed by a bounce into the 13,500, plus or minus 500, zone (which would retest the 2007 and 2012 peaks), followed by a strong slide below 10,500, which would likely reach at least 9000 (and test the supporting uptrend line from the 1987 crash low), if not one of the three green ovals.  

The path illustrated with the arrows is the primary forecast, based upon many factors of chart pattern recognition, going back 100 years, classical charting techniques, and various technical theories including Elliott Wave, Fibonacci, and Gann analysis. 

One of the easiest indicators to see -- which supports the DSE's last couple of months of warnings as index after index rolled over and foreshadowed the selling of the past week -- is the bearish divergence sell signal in the stochastics.

Leading into the price peaks of early 2000, late 2007, and the middle of 2015, while prices were making higher and higher price highs, stochastics made lower and lower highs. This portends the loss of momentum that historically leads to price peak/reversal patterns, which DSE allows us to document day after day.

With this in mind, although a short and/or sharp bounce is due to begin in the early days of this week, the arrows and green ovals graphically indicate that the decline that began recently is fractionally off the highs, and massively off the lows of where it will likely end up.

As this article Friday said, the market has now echoed the setup of the October 2007 to January 2008 pattern. If this is the analog of the current selloff, a bounce will begin this week, last a couple weeks to months, make lower highs, then decline along the path of the blue arrows above, culminating in a final low 24 to 36 months from now.  

On the other hand, further study has revealed a another, less likely possibility, but one that can't be ruled out, similar to the 1929 pattern.  

For this scenario to play out, U.S. stock indices would rise to new highs in the next two to four months, then crash in a much more dynamic (more points per day, week, month) wipeout that still concludes within the same time window. As soon as the market hints at which path it wants to embark upon, we'll note it here.

Until the market issues that memo, here's what we know. The Dow closed at the five-standard-deviation band below the 200-day moving average. The VIX closed at the five-standard-deviation band above its own. The rarity of this extreme compression occurs less than one-tenth of 1% of the time; a very hard data point to argue.  

Therefore, new selling here is not optimal, even if lower price lows are seen early this week, before PPT buy programs, manipulated corporate stock purchase programs, and a wicked short squeeze are coordinated.

As of this writing, which is around midnight EST Sunday, the Dow futures are testing 16,000 while the E-mini S&P 500 futures are testing 1900. That puts the Dow near the lower six-standard-deviation band and the E-mini futures near the lower five-standard-deviation band.

Those are benchmark oversold levels that are too late in this initial decline to sell into, when DSE warns that selling actions are not optimal at this moment. With crude futures down and testing $39, and metals down too, this appears like margin clerks anticipating a huge down opening for stocks, and firms are selling futures to hedge the risk of an implosion.

This allows us to publish support targets for what should be the worst-case "tests," but unlikely where the close of Monday's session will end.  

These are not buying signals, as the DSE is only recommending buy actions be used to cover dramatically oversold, and massively profitable, short exposure.

Dow: 15,900, plus or minus 150. S&P 500: 1875, plus or minus 30, Nasdaq: 3925, plus or minus 50. Russell 2000: 1095, plus or minus 25. The VIX could see 45, plus or minus 5, initially, if the Dow opens near 16,000 and S&P opens near 1900.  

That extreme would approximate the 2011 and the 2010 panic spikes in fear!  It's way too early for the 2008 spike highs in the VIX near 90 to be tested, but eventually, this volatility gauge will see triple digits. 

This is what Ralph Elliott called the crowd's "recognition" that the old trend is over, and the new one has begun. It's "third wave" action, and, once mature, will be followed by wave four; an upward bounce. Then, wave five will put in the final low (of this initial decline), and the largest upward bounce since all-time highs will occur. 

"A strange game. (Sometimes), the only winning move is not to play"  -- Joshua in WarGames (1983)

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.