Surging oil prices have dominated the financial news over the past few days, as crude oil futures came within a hair of the $100 milestone this week, rising to $99.29 on Wednesday.

In response to the latest up-tick in energy prices, stocks continued to trend lower. The Dow Jones Industrial Average declined 211 points on Wednesday versus Tuesday's close.

In light of the fact that the demand for oil is continuing to outstrip the available supply and that the winter heating season is just now getting under way, my research suggests that oil prices will break above the $100 barrier within the next 10 days and that crude oil futures will then quickly advance to around $110.

If crude oil does in fact rise to the $110 level, my models indicate that gasoline prices will rise to at least $3.50 — greatly surpassing the highest inflation-adjusted price of around $3.00, set in 1981. Heating oil will also continue to rise sharply, if crude oil approaches the $110.

In such an event, my research indicates that consumer confidence will continue to fall and that consumers will sharply cut back on their spending at the local mall. The University of Michigan reported on Wednesday of this week that its consumer expectations index has already fallen to a two-year low.

In turn, manufacturers and retailers likely will continue to reduce their workforces, unemployment will rise, and consequently economic growth in the U.S. would come to a screaming halt.

Manufacturing companies have already reduced their workforces by 203,000 over the past 12 months, and retail establishments cut their staffs by 22,000 in September. Meanwhile, new claims for unemployment benefits — a key leading economic indicator — have risen significantly over the past four months.

As you can see from closely reviewing the chart below, stock prices have historically fallen sharply after this leading economic indicator fell to a low point and then trended significantly higher during the ensuing months. I see no reason why this time will be any different.

So, get ready, because there's a good chance that $3.50 gasoline is just around the corner. In the event that oil goes to $120, which my models suggest is very feasible, you can expect gasoline to rise to around $4.00 per gallon.

Now, for those of you who might think that I'm one of those "gloom and doomers," think again, because I was in the bullish camp through early July of this year.

And please don't think that I'm pessimistic, because I'm not. Actually, I am quite optimistic. Optimistic, that is, that stock prices will continue to fall this year and that exchange-traded funds that appreciate in price when stock prices fall will continue to rise.

Two of these types of ETFs that I've been recommending in The ETF Strategist since late September have already appreciated 15 percent and 14 percent over the past month. Click here for information on these ETFs.