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As we enter August, the market finds itself approaching significant resistance at approximately 1,000 on the S&P 500. 

And so the big question is, "Can the S&P break 1,000?"

reprinted with permission from stockcharts.com

Also, you can see on the upper graph that RSI is at 71.76, and so the market is extremely overbought, just as it was last week.

Support rests at the 950 level and so a pullback from here could be expected to be about 5% below current levels.  If we see a break through to the upside, next resistance is at 1150, or approximately 11% above current prices, and we could expect a move to that level. 

We expect higher prices ahead at least until the autumn; however, the market is still way overdue for a correction short term.  The rally has come a long way in a short time and with many analysts putting fair value on the S&P at 910, it is 7-9% overvalued.

But markets move these days on momentum and computer programs and so could easily move higher.  Strongest sectors are in emerging markets, tech and materials

However, Fed President Janet Yellen says that the problems with commercial real estate will be the next crisis faced by banks and the CEO of Deutsche Bank concurs with his statement that "bad loans will be the next wave" of the financial crisis.

And "Dr. Doom," Nouriel Roubini, sees a possibility of a double dip recession in 2010 0r 2011 due to consumer problems and high oil prices.

Meanwhile, in China, another huge bubble is forming which they seem to have a penchant for doing.  The Shanghai Composite has gained more than 80% in 2009 and Bloomberg reported that individual Chinese investors opened more than one million stock accounts in the two weeks ending July 24th, the fastest pace recorded in the last year and a half.

So the short term looks relatively bright with perhaps more storm clouds on the horizon.

The Week Ahead
 
.Monday: June Construction Spending, July Institute of Supply Management, July Car Sales
 
Tuesday: June Personal Income, June Personal Spending, June Pending Home Sales, 
 
Wednesday: ADP Employment Report, June Factory Orders
 
Thursday: Initial Jobless Claims,

 Friday: July Non Farm Payrolls, June Consumer Credit
 
Sector Spotlight
 
Leaders: Home Builders, Financials, Home Builders
 
Laggards: Silver, Energy, Oil

To get a Complimentary Special Report from Wall Street Sector Selector, click here:

I hope you have a great week and enjoy the "dog days of summer."            

John

John Nyaradi

Publisher

Wall Street Sector Selector

All information presented herein is for general information only and deemed to be from reliable sources, but we cannot guarantee its accuracy. Readers are strongly advised to check with their investment counselors before making any investment. There is risk of loss in all investment activity.