Perspectives on the near-term bull and bear case in S&P 500

Let's review some bullish vs. bearish perspectives on where the S&P 500 goes in the near-term. By "near-term," I mean next week and the few weeks after that. First, Friday next week is opex (options expiration) day for March ... so it's very interesting to see that in the week before opex, the market retraced upward almost exactly what it lost during the prior week! So it may not be unreasonable to expect the market, having spooked everyone the first week of March and cheered everyone this past week, to frustrate many by settling in a mild pullback. Or at least, you'd think so - but it could also frustrate many by settling slightly above where it is right now. Some like to look at "max pain" - I think that can be worthwhile at times like this, although it change and also it does not always point to where the market will go at opex.

But we can take a look, and there's a calculator you can use at Option Pain (Max-Pain) Calculator which calculates 77 as the max pain value for the ETF for the S&P 500, SPY, today with the graphics shown at left. These show that, as of today, the most value of options that would be frustrated if opex occurred today, would occur if SPY settled at the price of $77. This equates approximately to the S&P 500 settling at approximately 760. But maybe this only tell us that it's likely the market moves slightly higher immediately - it doesn't necessarily tell us where the market goes over the entire next week (since max pain can change, and also the market doesn't necessarily "obey" it by going right to it at opex).

So remember, the value of max pain changes, but the point is that it is unlikely to change by very much, especially as we get closer to the opex date. (For more info, you can check other sources too, such as Investopedia at Max Pain (TM)).

How about a look at basic charting? Here's a quick look at the daily and hourly charts of the SPY to see whether that level of 77 (approximately SPX 760) may work on the charts too. As you can see, there is chart resistance a little over 78 (about SPX 770). Also, if you look at the markings I placed onto these charts, especially, the hourly chart, you can see that it would not be surprising to see the market also pulling back. Indeed, it would not be surprising to see the market doing both next week - moving a bit higher, and then pulling back, perhaps settling about 760 SPX. Depending on where it moves early in the week, that can change the max pain calculation slightly.

What about Elliott Wave? There are some EW analyses to tend to see this as all or part of a wave 4 correction, to be followed by another move lower. This has been indicated, for example, in Andre Gratian's work, as shown in his weekend updates. Others mark the SPX 667 low as having completed the downwave, or at least have that as a provisional count. This is how it's marked on Tony Caldaro's OEW, as shown in his hourly chart below (from his public chart lists at his site):


Personally, I've been thinking that we do dig a little deeper, such as approximately 640 in SPX. That is based on my long-term monthly charts, which I've posted here a number of times. But I'll respect the market if it wants to do something different of course. There is a possibility that we've seen a cycle low and the market does move higher from here for a few weeks. In that regard I think about the ABC markings I placed onto my weekly chart (which I've posted here including in the past several days) and wonder if we may have seen the market play that out as just a preliminary movement to be followed by a pullback up to my weekly chart's channel midline, before a rollover down to the bottom channel line on that chart. That possibility does see the markets staying positive into early April.

The date of April 18 that Merriman mentions in his weekly comments (posted here last night from his website) is interestingly close to the Armstrong cycle date of April 23. I'll think that the market may move higher into that time frame if I see the VIX break my trendline and its 200-day moving average. That could also see the Dow Jones Industrial Average test back toward the 8000 mark. A great many people believe that we are seeing a bear-market rally, and indeed seem to be looking for such a scenario to play out. Normally I'm skeptical when that seems to be on so many people's minds, but I won't step in its way if we see the markets move decisively above SPX 770.

In the meantime, if we see a pullback early in the week, then perhaps that's a very short-term pullback prior to testing SPX 760. Conversely, if we see SPX 760 early in the week, then we may see the market weaken off from there. Meantime, I take some comfort from seeing that the COTs Timer blogspot agrees with me that these levels are likely to be short-lived before we see lower - as described at S&P 500 Rally Could be Short-Lived (COTs Timer, 3/13/09). This may disagree with others that I respect - so I'll try to keep an open mind (unbiased!) and we'll see what the market brings us day by day this week.

Note - many of the sites mentioned above are always in the "other sites of interest" at the right side of this page, including Andre Gratian, Tony Caldaro, COTsTimer, and Raymond Merriman.