I have been telling you about the possibility of the S&P 500 breaking through the 1250 barrier. Now that we have reached this technically stiff resistance level, the S&P has now reached a moderately overbought position. This means the index may not have enough power to breakout above the key resistance level without first selling off.

For traders, look for a pullback to the S&P 1125 area. This will give the market some time to work off its moderately oversold condition. With temperatures getting colder, and oil rallying, this just may be the excuse the market needs to take a time out.

If the S&P pulls back enough to work off the overbought condition, it may gather enough steam to hurdle past the 1250 mark, and a final blow-off could drive the market averages to the 1300-1350 area by year-end. This in my opinion would be the grand finale'.

INTEREST RATES, COMMODITY PRICES & INFLATION:

I hate to tie all of these area's of the economy together, but based on my analysis, I don't have much of a choice.

For now, interest rates continue to be in a trading range. What is frightening is interest rates are signaling a deflationary environment, while commodity prices are signaling an inflationary environment. So, the bottom-line here is, we are seeing a decoupling of the direction in interest rates in relation to commodity prices.

This negative price action is extremely rare. A similar situation like this occurred during the Great Depression, when interest rates were range bound, and commodity prices were rallying.

The recent pullback in oil and commodity prices were overdue because both were very extended and due for a pullback. Longer term, I feel that oil and commodity prices are still in a longer term bull market.

As the economy continues to cool in 2006, any significant pullback in oil, and commodity related stocks, has got to be viewed as a buying opportunity. Depending on the magnitude of any slowdown in the economy, a severe slowdown could pull a barrel of oil to below $50.