A few weeks ago, the bears fired a warning shot at the equity markets: Should the S&P 500 break its intraday low of 741, the next stopping point would be 600. The fundamental justification for 600 is fairly straightforward - $50 operating earnings times a 12 P/E gets you to 600. $50 is the mid point between the top-down super bears calling for a mid-$40 number, and the more conventional top-down prognosticators with their mid-$50s number.

The 12 P/E seems reasonable, as traditional valuation methods indicate a super bearish single-digit reading (such as the 8 P/E reached in the late 1970s) unwarranted with nonexistent inflation; an average, times P/E of 15, is inappropriate for these most unaverage times. That said, any P/E is going to be controversial during economic extremes. So, 12 is what I hear as the acceptable compromise by most forecasters.

So are we headed non stop to 600?

Before I get to why the 600 call is unlikely right now, let me address 2 factors - one fundamental, the other, a market dynamic.

The fundamental factor is the battle between the Dr. Doom bears who say the actions (monetary and fiscal) taken by the US government will fail to produce little more than a slowing of the descent into economic hell, as the forces of deleveraging and deflation overwhelm their feeble attempts at stability and (eventually) growth. And there are those who argue that whenever you throw a few trillion dollars at something, movement is certain to take place. Time will tell how this battle turns out. For the moment, the doom-and-gloom crowd has the upper hand. The second factor is bit more nuanced.

By all accounts, hedge funds are under sustained pressure from investors as redemptions continue at a near-record pace. The first-quarter numbers seem to be matching the fourth quarter of 2008, just over $100 billion of outflow. Since the first quarter of 2009 is just weeks away, it's reasonable to assume that many hedge funds are acting in similar fashion as the end of the last quarter, 2008 - not waiting until the last weeks of the quarter to raise capital. Therefore, it can be argued that the maximum selling pressure from the hedgies is right now. That means that, like December of 2008, anybody who wants to get out will do so well in advance of the end of the month. Now, for the technical reasons why 600 is unlikely.

There are 2 primary technical-analysis reasons that argue against the big plunge right now: momentum and divergences. Let’s look at each, and you decide.