By Jim Donnelly, Olson Global Markets

A clear sense of unease, underscored by another stunning flight into U.S. Treasury securities, has engulfed the equity markets. An unexpected 500K jump in initial weekly jobless claims reinforced the notion that that employment picture is far bleaker than previously thought. Adding to this dark economic outlook was a report issued by Fidelity Investments on Friday noting that hardship withdrawals from 401(k) retirement saving plans rose to the highest level in 10 years during the second quarter. Further, Fidelity reported that the percentage of 401(k) participants that had an outstanding loan against their account rose to a record high of 22% during the second quarter, with an average loan amount of $8,650.

With a number of economic observers worried that the Federal Reserve may be “running out of bullets” in the attempt to turn around and sustain an economy recovery, investor confidence has become more unnerved. Renewed fears over Greece as well as concerns over domestic municipal budget woes resurfaced last week as well.

With a backdrop of continued equity fund outflows and an increase in “fixed income” or bond fund inflows, it may be worth noting that the Dow Jones Industrial Average appears to be forming an unusual type of Head & Shoulders pattern that appears very similar to one that developed between 2007 and 2008. In both cases the “neckline” of their respective patterns is characterized by a steep downward sloping pitch. Of course, the current market for the DJIA is 3,000/4,000 points lower than during the 2007/2008 period, which is worthy on note since Head & Shoulder patterns often show up at extremes in the market. While the current market maybe relatively extreme when compared with the March 2009 selloff low, it is not similar to the 2007/2008 buying extreme, which set an all-time high for the DJIA back then.

Nevertheless, “patterns within patterns” technically can often be of a similar nature, akin to having the same sort of DNA in a sense. In this context, the hangover from the fear of an economic meltdown from a few years ago has not yet worn off, either domestically or globally. Memories of that period’s tumult remain fresh in many investors’ minds. Oddly, that may well be a good thing. After all, a lot of selling of equities has already occurred, with “cash on the sidelines” already tucked into extraordinarily low yielding U.S. Treasuries, FDIC insured bank CDs, corporate bonds and notes, gold, silver and, perhaps, into the safety of mattresses! Recently, a few well known hedge fund managers also tossed in the towel and closed up shop.

Although the DJIA may resemble that of 2007/2008 technically, market sentiment is very, very different. Still, equity markets do not like uncertainty which seemingly abounds today. Many changes, including the Health Care Bill and FinReg have decision makers at the business level handcuffed due to the technicalities of implementation. That condition, by itself, will tend to retard job growth. In the end, these kinds of concerns may well force investors to pay heed to the unusual looking “Head & Shoulders” pattern that may be developing now.

http://www.ogmarkets.com

By Jim Donnelly, Olson Global Markets

After the release of a host of worrisome economic data, the Dow Jones Industrial Average (DJIA) closed below both “cross” trend line and “mid-channel” supports located at the 9,885 level last week. Housing sales and starts were disappointing. Consumer spending was tepid. Manufacturing ISM posted its weakest reading since November. Initial jobless claims rose unexpectedly by 18K last week with Friday’s monthly employment report showing a mere 83K increase in private sector jobs during June.

As a result, a typical pre-holiday long-weekend “short-covering” rally never materialized on Friday with the DJIA falling by 46 points instead. Dollar weakness also played a roll in tempering any investor enthusiasm.

Weekly bar charts currently suggest that the “risk” of a possible move down to key “channel bottom” support now at 8,780 over the near-term is a reasonable expectation. Weekly technical studies are not yet in an oversold condition, but should be by the time “channel bottom” support is reached, if this scenario plays out.

http://www.ogmarkets.com

By Jim Donnelly, Olson Global Markets

With equity prices pressing higher, it appears that the Dow Jones Industrial Average (DJIA) is quickly approaching a test of the “backside” of former trend line support (now resistance) at the 10,770 level. In the absence of an overbought condition on weekly charts, there appears to be a reasonable chance that a “break” above resistance will occur.

If it does, the next focus of attention would be for an extension up to, possibly, key “cross” trend line resistance now located near 12,200 (but rises over time). This, of course, would compliment the S&P 500 Index, which is also edging toward key “channel top” resistance on its weekly chart.

Still, key trend line resistance on the Dow Jones Industrial Average is closer, relatively, than “channel top” resistance is to the S&P 500 Index. As a result, if the DJIA does break higher, it would then become the leader in the overall advance higher. If it does not, it would also become a telling “non-event” to equity bulls. The current technical set-up, however, does favor a “break” to the upside.

http://www.ogmarkets.com

By Jim Donnelly, Olson Global Markets

It is the last week of the year and many trading books have been closed in order to avoid any negative surprises and to “lock in” gains. Nevertheless, the DJIA edged closer and closer to a test of the technically important trend line resistance level of 10,660. This level represents the “underside” of former trend line support drawn off the lows of December 1995, October 2002 and March 2003 which was decisively broken below in October 2008 following the failure of Lehman Brothers.

Since the depths of March 2009, an almost uninterrupted reversal higher has occurred, which has caused the DJIA to currently enter into an overbought condition on weekly charts. Normally, this type of set-up favors an initial rejection when trend line resistance is first tested. In addition, a consolidation phase of perhaps 38% to 50% often ensues.

Over the past decade, however, the equity markets have been fraught with excessive price activity, which is why the 10,660 level takes on additional importance. A solid rejection there would suggest that a typical correction phase may emerge. A solid break/close above it, however, would confound bears, as well as moderate bulls, which could result in a fresh round of investor demand.

http://www.ogmarkets.com/