Friday and Monday's small movement days are common at the start of a major new trend in either direction, right after the initial move. We saw a bit of weakness this morning after the disappointing Apple guidance, but as long as the S&P stays above its last breakout level at 1240, the developing uptrend is intact. I would not be surprised to see an intraday drop into the 1240 to 1245 range in the next couple of days that is quickly rejected, with a close back over 1258. The next move up should carry all the way to the major breakdown level at 1326--perhaps in one day.

What news could drive the market up so far and so quickly? I believe an Israeli/Syria peace pact and a U.S./Iran "understanding" will be announced in the next few weeks. The agreements will have significant financial incentives for Syria and Iran, funded by Saudi Arabia. Over the weekend, there was a dramatic, albeit quiet, shift in U.S. policy towards Iran. The Bush Administration sent Bill Burns to Paris to participate in international talks with Iran trying to resolve the impasse over Iran's nuclear program. Previously, President Bush had said we would meet face to face only after Iran suspended its uranium enrichment program, as has been demanded by the U.N. Security Council.

Iran has been taking the position that there can't be any agreement without U.S. involvement, and our State Department said joining the talks sends "a strong signal to the Iranian government that the United States is committed to diplomacy." Of course, they also insisted there has been no change in policy. Right.

We now know that Iran has no intention of building nuclear weapons in the immediate future, and with Saudi Arabia's behind-the-scenes offer of financial incentives, some simple inspection agreements will let the U.S. and Iran stand down. The U.S. is about to alter its stand towards Iran just as radically as it did towards North Korea. Naturally, we will position this dramatic shift as nothing more than the same strategy we have always had of controlling Iran's nuclear activities without resorting to military force. All the U.S. rumormongers of an "October surprise" attack on Iran will be discredited. And in what may be the real driving force behind the change in policy, the issue will be lifted from Senator McCain's shoulders as he pursues his uphill battle for the Presidency.

The crude oil market looks like it is sensing these deals coming, with yesterday's rally nothing more that the typical test up to an important breakdown level, in this case $132 a barrel. I expect $132 to turn oil prices back down unless there is a brief spike because Hurricane Dolly changes course and does some damage in the Gulf. In fact, the next drop from $132 could be a big one, carrying oil prices under $120 towards their ultimate bottom in the $80 to $100 range. A drop in oil prices of that magnitude should drive the S&P through resistance at 1326 and 1440 to new highs over 1555 by the end of the year.