Preview: Medium term bullish technicals, near term bearish risks, and a speculative QE-themed projection to SPX 1430. See below for details.
Medium Term Bullish Technicals
Regarding the big picture, a range bound stock market since the February high is likely (eventually) bullish based on the following long term and near term observations, until underlying forces change - as the risk to this interpretation is the realization of the bearish nested 1s2s or a leading diagonal decline from the May top.
 The monthly chart of SP500 that SPX has broken above a decade-long resistance zone, retested it and closed about 4 index points above the zone this past week (Chart 1). As mentioned in recent weekend commentaries, as long as SP500 is cushioned by this long-term zone, odds favor the more bullish corrective counts.
 Since the February high, SPX and other broad market indexes have traced out a three-wave decline to the March low, then a three-wave advance to the May high, followed by the recent overlapping-wave decline (Chart 2). This is likely a corrective structure. The key question is where the correction ends - Chart 2 offers a number of logical ending points, including the past week's low.
 Regarding near term technicals (Chart 2), note that
(a) the market bounced off the lower end of the trend channel since the July 2010 low, the lower Bollinger channel line, and the lower end of the April gap.
(b) SPX managed to close near the high of the week and just above its 50-day moving average.
(c) MACD is approaching a bullish cross.
Near Term Bearish Risks
The risk to this bullish interpretation is the realization of the bearish nested 1s2s (Chart 3, red) or a leading diagonal decline from the May top (Chart 3, purple), as well as the continued tracking of the quantitative easing (QE) fractal.
As we approach the end of QE2, the stock market appears to have been tracing out similar price patterns around the end of QE1 but at an accelerated pace. This is most clearly seen in the Russell 2000 index, as discussed in Russell 2000 QE Fractal (5/20/11). Based on this framework, this past week's rally is the advance towards point number 6 in Chart 4.
To the extent that this price pattern continues to track, one can expect a decline to point number 7, to at least retest past week's lows once the advance to point number 6 is done. Last Friday's high is the first logical spot for point number 6.
It's interesting to note that point number 7 decline in Q3 of 2010 was stopped by hints of QE2 in August 2010, which was formally announced in November 2010. QE3 by September or Q4 of 2011 or is it out of the question? It's anyone's educated guess.
Speculative Hope Rally Projection with QE3 (-type Monetization) - SPX 1430?
Assume that the end-of-QE fractal continues to track and that QE3-type monetization eventually surfaces, the hope rally since the March 2009 low has a chance to become a triple-zigzag after all. Chart 5 offers this speculative count and projections. An explicit QE3 may not be necessary. It can be named anything as long as it effectively delivers a QE3-type monetization.
 Within this projection, the consolidation since the February high is the second [X] wave.
 Note that the second zigzag [Y] is a near fibo 0.63 times the first zigzag [W].
 To have the "right" look of a triple zigzag, some overlap (or near overlap) between [X2] and [X1] is desirable. A natural target zone for the current correction within this projection is between 1150.45 and 1219.80 in SPX.
Two targets for [X2] are given as follows.
[X2]=[X1] at 1161.69, [X2]=0.629 [X1] at 1239.12
 Assume that the current correction bottoms around 1239.12, a likely target area for the final top (the third zigzag) is 1430.67 in SPX, where [Z]=0.629[Y] (0r 1427.23 where [Z]=0.618[Y]).
 The extended hope rally would also help to satisfy a number of time relationships, such as the one outlined in Chart 1.
However, without additional correction in the near term, odds appear to favor a final advance above the May high (to complete the large ABC structure since the 2009 low) rather than a triple zigzag.