Here is a 10 point box, one box reversal point and figure chart of the cash S&P 500. The thing that stands out most on this chart is that the recent three week trading range between 1210 and 1290 stands almost completely above the longer and wider August-October trading range. I interpret this to mean that the market is accepting prices at or above the breakout level as fair value. This in turn says that the move to 1290 in late October was a genuine breakout and should be followed by upside continuation once the current consolidation phase is complete.
The sovereign debt fiasco in Europe has been blowing the market hither and yon for four months now. Despite an avalanche of bad news and dire predictions the S&P is still trading almost exactly in the middle of its 2011 range. This I think is bullish behavior in the face of bad news. Of course, the news can always get worse as we discovered in 2008, but generally I find that it is unwise to fight the market's last war.
Note that the August-October trading range ended with a shakeout which too the S&P about 10 points below the low of the trading range and this shakeout was followed by a fast rally. I think something similar is going to happen now.
The only thing which would cause be to be wary and possibly abandon my bullish prognosis would be a close today (Friday) below 1208.50, the November 1 low. Such a close would be below the lows of the preceding two weeks and suggest at least a further drop to 1140 or so.
