Before the opening on Monday, the S&P 500 futures market followed the Asian markets down, getting as low as 1310 at 1:30 a.m. EST in a test of the 1313 support level. At that point the futures reversed, climbed into the opening of the regular market, and then kept rising to close 46 points higher at 1356.75. This marked a successful test down to lock in the recent rally off the January 23 bottom at 1270.05 (or 1250 in the futures market).

Although there always could be one more quick, scary test down to last week’s lows, Monday’s action tells me that it would be successful. But it’s also important to note that unless the market can find something new to worry about, such as a U.S. attack on Iran, there may not be another test at all. And an S&P close over last Friday’s high of 1368, which could come as early as today, could trigger a monster rally. When the S&P goes back down to make a secondary low, and then gets a burst of energy to push it up over the previous high, that marks a true reversal, not just an oversold rally.

An impending close over 1368 is the time to get to a maximum invested position, whatever that means to you: Buying stocks, going on margin, buying options or buying futures. Be sure to close out all put positions and “inverse” exchange-traded funds that go up when the market goes down.

One reason that there may not be another test down is that it would supposedly be driven by the reality of a recession. Those who invest based on surveys or consumer confidence polls have been pointing out that the average recession lasts about 10 months, with the market starting to rally about six months before the end of the recession. As tomorrow morning’s December-quarter advance GDP report will show, we are not in a recession yet. Therefore, these investors conclude that there are at least four months of down market ahead of us, before the bottom.

There are three problems with this kind of thinking. First, the best predictor of recessions is the stock market. Surveys and polls almost always will make you lag the real bottom by two or three quarters. Second, the Fed knows the history and numbers as well as anyone, and now that Bernanke’s paralysis is over, they have lots of bullets left to shoot at a slowdown. Third, over 70% of the populace now expects a recession, yet widely anticipated recessions usually fail to materialize. Why is that? Because businesses cut inventories so that they don’t get caught, and the normal inventory cycle that causes recessions is aborted. Right now, the inventory/sales ratio is at a record low. That’s not where recessions start from, yet you are not hearing about this on CNBC or Fox Business.

Here’s how the Economic Cycle Research Institute just put it: “If we have a recession this year, it would turn out to be the most widely anticipated recession in history. Clearly, the pessimism of consumers and business managers could cause them to cut spending, creating a self-fulfilling recession prophecy. But there is another side to the story.

“The biggest negative impetus in any recession comes from the manufacturing sector, driven mostly by the inventory cycle. Unaware of an approaching recession, businesses typically produce goods in anticipation of rising demand. When to their surprise, demand for their products starts falling, inventories mount rapidly, forcing sharp production and job cutbacks, thus reducing income and spending power. The spending cuts force further production cutbacks to work off the excess inventory.

“This time, prolonged pessimism about the economy, along with a surprise acceleration in growth through last summer, has resulted in a sharp drop in business inventories, taking the inventory/sales ratio to a record low. Thus, there is very little inventory left to whittle down in response to slackening demand.

“Therefore, the inventory cycle downturn responsible for most of the downward impetus in a recession is likely to be less powerful this time. Also, if timely stimulus results in a quick burst of consumer spending it will force manufacturers to boost production instead of reducing inventories. That is why prompt stimulus could be unusually potent in this cycle.”

Just like 1998, when the Asian currency crisis caused their markets to collapse in July and the Russians defaulted on their debt in August, bankrupting the Long-Term Capital Management hedge fund and causing U.S. investors to worry about a domestic recession, the Fed slashed interest rates to restore order. Before any of the worries subsided, the S&P 500 successfully tested its lows and began a powerful 68% rally that lasted 17 months to the bull market peak in March 2000. A similar 68% rally over the next 14 months would get us just over my parabolic market target of 2100 by the April 2009 turn date. It looks to me like that is a far more likely outcome than a U.S. recession and four more months of stock declines. It requires only a daily close over 1368 to get underway.

For those buying stocks, my recommendations for the companies most likely to respond earliest and strongest in the next upleg remain the same:

Akamai Technologies (AKAM)

Alvarion (ALVR)

American Science & Engineering (ASEI)

eResearch (ERES)

Harmonic (HLIT)

Intel January 2009 $22.50 LEAP calls (VNLAX)

Motorola January 2009 $17.50 LEAP calls (VMAAW)

QuickLogic (QUIK)

SiRF Technology Holdings (SIRF)

TowerStream (TWER)

US Geothermal (UGTH)

For those buying call options on the SPDRs (S&P Depository Receipts (SPY)), the April expiration is about as near-term as I would go for a speculative position. That would get you past the March 22 turn date, and I would stick to slightly out of the money strike prices. If you are more conservative, go out to the December expiration and buy well-in-the-money contracts. For example, if you wait for an impending S&P 500 close over 1368, the December SPY 132 (SFBLC) or 133 (SFBLD) strike prices would be attractive contracts at that time. We will not be tracking these in the New World Investor portfolio.