With all the whipsaw action these past two weeks, it might be helpful to review the big picture.  We’ll start with the chart pattern that’s easiest to see: a big rising wedge.

The wedge shows the potential for higher prices — a tag of the upper bound, for instance.  The apex is currently around 1472 in January of 2013 (but, wedges rarely play out all the way to the apex.)

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If we throw in some fan lines from the all-time high in October 2007, we can see the recent push higher represented a potential breakout above the fan line to the 1422 high in April.  It currently stands around 1408.80.

Adding fan lines from the May high and October low helps explain most of the turns along the way.  It also supports the idea of higher prices within the wedge going forward.

We can assume the wedge’s upper bound is valid because parallel trend lines drawn elsewhere on the chart define critical turns along the way.  As a system of channels, they indicate the trend is still up — though we’re about to run into resistance (currently at 1444.)

The same can be said for the lower bound.  The purple channels point upward, and offer plenty of room for the current trend to play out.

I like to apply Fibonacci grids to wedges — to get a sense of how mature they are.  They often break down at key Fib levels.  If I’ve picked the correct apex, the .886 price Fib is at 1426 and the .786 time Fib is around 9/11/12.

Of course, just because the door is open to higher prices doesn’t mean that we’ll get higher prices.  A slip of the tongue by a central banker has the power to make or break rallies lately.  And, there’s the small matter of that fiscal cliff that will require nothing short of a miracle to resolve.

My thesis remains that we are likely to see slightly higher prices into the election, but with some sizable bumps along the way.  There’s good potential for a top of about 1450 around September 11 — the .786 time Fib.  From there, The Powers That Be will do their level best to keep the crap game afloat through at least the election (the .886 time Fib.)

For all their belly-aching about the current administration, Wall Street has done very well by Obama & Co.  A new guy who’s threatening to sack Bernanke does not seem like a good bet.  Neither does a return to the gold standard.

One last chart to chew on: the weekly RSI.  While we’ve clearly broken the little yellow trend line over to the right, we should see plenty of support from the purple and white TL’s.

My best guess is a lower high on RSI, which corresponds with a higher high on SPX — a final, meaningful negative divergence that sets up a sizable correction (or worse.)  It might go something like this.

The RSI dip would most likely correlate with a correction to the rising wedge’s lower bound — probably around 1335-1370 around October 8 (another October correction!?)  It’ll feel like a significant drop if it comes from 1450 — providing all the cover Bernanke needs to announce QE3 — for the sake of the economy, of course.

I’ll play with this more over the weekend.  Right now, I’m going to catch up on my sleep from this long, long week.  Have a great weekend, everyone!