Asian markets advanced overnight on a good earning number report from Kia Motors. The Nikkei closed with a 0.15%, HSI (Hong Kong and Shanghai Index) closed with a 1.71% gain, and China finished the session with a 1.85% move into the green.
Meanwhile S&P Futures were also looking bullish with moves towards the 1098 highs over the past few days. From a technical point of view, a break of this high may push the prices up towards the 1115-1120 area.
That technical outlook could be tainted by sentiment and momentum as the market absorbs a raft of earnings numbers from the likes of Microsoft, Burlington Southern, Honeywell, and Schlumberger.
Over 80% of the companies that have reported earnings have beaten estimates so far, albeit that those estimates were continually downgraded throughout the year. Hitting lesser targets works in the near-term, but at yearly highs it may be that equity markets are priced for perfection, and in that environment volatile reversals can easily happen.
A real test of resolve now will be whether the market has overpriced the valuations on equities, now that the numbers are revealing little top-line growth, and limited room to cut expenditure and inventory further.
The U.S. Dollar Index is currently trading higher on a daily basis after the recent tests of the 75.00 support area, which could be taken out quickly if the 1098 S&P Futures highs is taken out on positive sentiment, but will get solidified all the time that equities hold below that area.
The weakest currencies of this week are Japanese yen, and quite interestingly, the Canadian dollar after an unchanged rate decision on Tuesday from the Bank of Canada, and a rate statement that talked down the value of C$. At the same time Oil traded higher, into the $82 a barrel area, something that would normally strengthen the C$.
A reason for weaker yen is the higher stock market valuations, as traders buy into the high-yielding currencies. The yen overnight rate continues to be very low, at just 0.10%.
On Sunday night, TheLFB Elliott wave team posted two Usd/Jpy charts (article), with targets around the 91.50-91.70 zone, which were reached. This zone however, still may not be the top of a corrective pull-back before the market reverses, and breaks back lower, through the 88.00 support zone from 7th of October.
Recent Elliott Wave view
On the recent four hour yen chart below, traders can see that market has reached the 91.50-91.70 target zone for the second time this week, after the bounce from our Fibonacci support region, discussed on Tuesday. The 38.2% Fibonacci retracement of a blue wave A) distance (daily chart) has been reached, so it could be the time for traders to step out of their long positions in the near-term.
The market was very choppy and quite slow from the 88.00 support zone to the current highs, which reveals the personality of a correction; labeled as wave B) on our wave count. Corrections are always made against the larger trend, so traders may be targeting new lows in the coming weeks, especially once the lower support line of a corrective channel and wave B support shown at 90.08 is taken out.
For now, patience is key, as the 50% retracement target of wave A) distance may also may be reached if the channel holds, before the whole long corrective leg from the88.00 support area will be completed.
No Positions in the above