Micro Market Structure Examined: Part II

We are now going to incorporate the hourly overlay, which is the key time frame used to initiate our position entry/exit algorithm within the context of the larger time periods discussed in Macro Market Structure: Part I.

From the May 11' top to June 11', there have been 5 signals generated: 4 short, 1 long (which I did not take as explained below due to low R-Value/Expectancy). The signals have on balance generated a +7.1R-Value over 8 trading weeks versus the Nasdaq 100 Index -6.8% return over the same period.

Macro Market Structure Examined: Part I

Let's review the most recent downswing in the US stock market, as per the activity in the Nasdaq 100 mini futures contract, on the basis of our 'market-structure', bottom-up dynamic. This approach gives us a strategic window into detecting profitable trading opportunities within volatile, range bound markets, as has been the case since early 2011. In the first chart below of the Nasdaq 100 mini futures (NQ), we can trace market movements within a broader sideways structure since early 2011, defined by shorter term trending oscillations.

Walking A Fine Macro-Monetary Line In China

Yesterday's 'bounce' in the markets can be attributed to a technically oversold condition, with reconciliation today back to the downside across most assets, specifically North American and European Equities. This renewed selling pressure again synchronized the shorter time structure (hourly) with the longer time periods (Daily and Weekly) all re-aligned today to the downside.

And coming off the data details in China yesterday which saw headline inflation tick up month over month again, supported by a rise in all the components. This adds to the heightened anxiety around coordinated 'jasmine' rallies, as social unrest increases due to the disparity gap of rich and poor, causing Premier Wen Jiabao to jack up minimum wage by 20%. But, the labor market outlook in China is also showing 'cracks' with expectations for hiring in Q3 2011 falling from Q2.  When we consider the trend towards growing urbanization over the years tied into the theme of an expanding manufacturing base and export economy, a weak labor market report in conjunction with rising consumer price inflation sends a chilling message to the Premier.

Dollar Index ....A Trend Reversal In The Making?

Let's look at the math behind the spiraling U.S. debt-deficit situation going into 2012:
The projected 2011 budget deficit sits at 1.48 Trillion.
Debt maturing including interest in 2011 is 2.15 Trillion (includes 142 billion in interest).
Less approximately 300 billion of yet to be purchased Treasury Securities as per TARP (900B in total QE2 spending).
This creates a gaping 3.3 Trillion fiscal 'hole' of funding and refunding needs through 2011.

And with monthly U.S. government spending breaking out on a fiscal year to date basis as per Sept 2010 - Sept 2011...no wonder the U.S Dollar has been collapsing as of late. See the weekly chart below of the US Dollar futures contract.

Market Recap -- Sitting On A Structural Precipice

Lets look at the NQ's (Nasdaq e-Mini Futures Contract) over the past month, as my proxy for the U.S. stock market and 'tell' for the domestic economic situation -- that is eroding at a fast clip on the basis of continued labour market weakness as per the latest from the BLS report last week (June 3rd), along with the recent broad-based weakness coming from the ISM manufacturing data -- on all fronts -- new orders, production and price index, all falling off a cliff in the month of May, which bodes ill for the intermediate term economic future.  Lets see if the NQ's are telling us investors and traders anything useful about this and the uncertain global macro-landscape beyond the month of June.