Dear New World Investor:

In last week’s issue, I wrote: “Now, the most likely course is an intraday low sometime between today and next Tuesday, followed by a powerful, multi-week rally ending in April or May.” Last Friday saw another test down that stopped at 754 on the S&P, and then Monday finally saw the undercut of 750, as the S&P closed at 743, virtually on its intraday low. But it was straight up from there on Tuesday, with a test back down yesterday to 753. If we’d seen another big up day yesterday after President Obama’s speech, it would have been a clear-cut signal that a big rally was underway. Even with yesterday’s intraday rally and drop into the close, followed by today’s yet-another-retest of the 750 level, the S&P is in a good position to kick off a pretty substantial upswing. But position is one thing and doing it is another, as we have seen several times during the last few weeks. The S&P is being most influenced by the 750 energy level, and that needs to change to the 820 energy level pretty quickly to keep rally hopes alive. I still think that is the most likely direction the market will go. The monthly charts indicate 1054 will be tested, and if successful, even the main breakdown level at 1260 could be part of this pattern. That would happen as a move to 1054 as panicked shorts and hedge funds buy stocks, a retracement to 910 or so, and then a big rebound up to 1260 as the public joins in.

My worry is that from there

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The S&P 500 Index (SPX) has reached a pivotal moment, and what happens over the next few weeks could reverberate for months — and even years — to come. As the chart below shows, the S&P has formed a double bottom at the mid-November lows.

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Dear New World Investor:

The last few days have been quite remarkable, and what happens over the next three or four days probably will make or break the year. On Tuesday, the Dow Jones Industrial Average closed 31 cents above its November 20 closing low of 7552.29, thus technically missing a Dow Theory bear market primary trend reconfirmation. Technicians all over the country breathed a sigh of relief, but I had to laugh. At the current level of the DJIA divisor, an additional downtick of less than nine cents in each of the 30 stocks would have produced a closing level that broke the November low.

On Wednesday, the Dow closed four points above the low, but today it broke down. This is absolutely classic bottom behavior. The only risk is that the S&P 500 breaks below 750, rallies back to that level and fails. That is a very unlikely outcome, partly because 750 is a very powerful, long-standing energy level for the S&P, partly because the downturn looks like it will run out of gas in a couple of days, and partly because there hasn’t been a run back up to test the 1054 resistance level. Even the big downturns like 2000 include a test back up that fails.

The intraday low in November was 7,392.27. Now, the most likely course is an intraday low sometime between today and next Tuesday, followed by

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Dear New World Investor:

What do the big stock market drops in 1907, 1929, 1974 and 1987 have in common? They all started in September or October, bottomed and then recovered with a strong rally into the following March. Most of the gains came in the last four or five weeks of the rally. These all were big rallies of at least 20%, and usually a lot more.

I think we are about to add 2008 to that list of stock market drops. We have bottomed and bounced off the 820 level on the S&P 500 11 times since the November 10 bottom, including today. Tuesday’s dramatic drop after Secretary of the Treasury Tim Geithner made it clear that he is planning to start planning real soon now for a plan to rescue the banking system, was just another test if the S&P can get back over the 850 to 860 range by early next week. Today’s last hour bounce starting from below 820 was helpful. But if this isn’t just another test and the S&P heads back down under 820 and then 805, it’s going to be a big leg down. Yet both the daily and weekly charts are calling for

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Some of you were worried about articles on the web that allege an April 2009 termination of Provenge IMPACT Phase III test. They said that at 304 deaths (just triggered), the FDA automatically ends the test. The implication these articles tried to make was that the 22% target for reductions in deaths was not met.

That implication is false. We knew the trial of 512 men would end when 304 of them died. That was agreed to with the FDA. The surprise was that this happened in time for an April analysis instead of a second half analysis.

But this in no way implies the trial failed. Most likely,

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Maribavir, which VPHM in-licensed from GlaxoSmithKline six years ago, flat-out failed its Phase III trial in CMV infections in stem-cell transplant patients. But Vancocin still is more than a year away from generic competition, maybe two years, and Cinryze is a certain hit, with the sales acceleration starting right now. The near-term value drivers in VPHM always have been

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Friday’s strong push up through the S&P 500 resistance range at 850 to 860 was impressive. It could be another fake-out, but

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Dear New World Investor:

The transition to a new website is well underway; please bear with me as we work out the bugs. I will be able to send you more frequent, focused missives and you will be able to comment, question, argue or agree with me and your fellow subscribers. I’m really looking forward to getting this rock-solid, and then expanding it to include even more features and functions.

Yesterday’s rally and drop was not fatal to the bullish case, but it was ominous. After trading around 850 as support for several weeks, the S&P 500 rallied back up to 850 in the morning and then failed. Volume was rather low, so there still is a chance the quick trip down to 750 that I talked about last week can be avoided. But we need to see eager buyers showing up at 830, enough of them to get back over 850 quickly, to believe that a visit to 750 is off the table for now. A drop under 810 would practically guarantee that a bigger move down to 750 is underway. These oscillating consolidations almost always end in a big move in one direction or another, but at this point it is not clear which direction will win out.

No matter what happens in the stock market, there are some remarkable things happening in the gold market, and it is time to take advantage of what looks like

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