Excuse the pun, but there is another catalyst building that could propel the markets higher other than falling energy prices;Rising short interest.

Short interest has risen to record levels on the NYSE, and an unwinding of those positions can provide fuel for a strong rally. In the past few trading sessions we have seen a battle among the bulls and the bears, and with it, increased volatility.

Short covering does not mean we will be entering a new bull market (yet), but it does add to my opinion that the seasonally strong period of October-November will probably be another "bear killer".

I still believe we will enter a new bear market phase in 2006, but I do not think the market action we have witnessed the last few weeks was the start of that phase.

The NASDAQ looks strong here, and looks like it is building a strong short term pattern.

Given the elevated level of pessimism and fear in the market place, it looks like the table is set for a strong rally.