As shown in chart 1 below, price has finally reached the first of many milestones: the 50-week moving average. Just above it is the blue neckline near 1280. At this stage, we should take it a day at a time, buying above a particular support level and holding until the next milestone is reached.  

 
Chart 1. The weekly chart of the S&P.

Even though the stochastic has made its way back to the top end of the range on both the daily and weekly timeframes, it doesn't automatically imply an oversold condition as this oscillator is pretty ineffective at the extremes of the [0-100] range. In other words, in a well-defined trend, it can linger indefinitely near 0 or 100, prolonging what is often misconstrued as 'overbought' and 'oversold'.

If this recent rally is simply the calm before the coming storm, some sort of topping pattern should begin to form soon. There's no evidence of it yet. Until then, I'll continue to track the price pattern's progress, primarily using Wave Theory and Market Profile, along with pattern recognition, Fibonacci mathematics, and traditional support/resistance levels (i.e., trendlines, gaps, pivots).

On Tuesday, the price of the S&P reached 1269.37, just 2 pennies above the 61.8% level shown on chart 1 of the Morning Report for 12/21/2011.  If price manages to recapture 1269.37 soon, I'll be inclined to go long until the blue neckline is reached. A break above this important resistance line means that price will likely continue its northbound journey. If so, the next important milestones to keep an eye on are the orange trendline (chart 1) and the green resistance level on chart 2 of the Morning Report for 12/23/2011.

Trade Well,

Peter