The S&P & NASDAQ Flirt With Resistance

Editor's Note:

Unfortunately nothing has changed for us since last week. Stocks have only become more overbought. Well, at least the major averages have become more overbought. A lot of stocks have already begun to correct.

The S&P 500 index is flirting with resistance near the 1,000 level while the NASDAQ composite is testing resistance at its long-term trendline of lower highs. With double-digit gains in July investors should be quick to take profits. Yet at the same time I'm expecting any correction to be relatively shallow. Keep an eye on the 950 level for the S&P 500. Broken resistance should be new support. Last week I said that there is a lot of money on the sidelines and money managers are chasing performance. It still applies today.

Be patient when it comes to launching new positions. In addition to the three new candidates on our watch list I would also keep an eye on OM Group Inc. (OMG), a chemical company, and RTI International Metals Inc. (RTI). Both look like potential candidates for LEAPS if the market corrects.