Why Has the Nikkei Out-Performed the SPX So Much Recently?
Our view is that the Nikkei has out-performed so much since later 2012 because of a technical set-up that was in place in the chart below.
In that set-up the ratio of the SPX vs. Nikkei hit material long-term resistance in the form of line (1), which was the top of a 14 year channel formed by it and line (2) as well as line (3).
Since hitting that resistance the ratio has fallen ~22% to its current level.
Push-back to the above would likely include claims that:
1) The technical set-up had nothing to do with anything and the move has been entirely fundamentally driven by Abe and Aso’s desire to generate inflation
2) Who cares if the Nikkei has out-performed, it’s only been in nominal terms given the Yen’s 16% decline over the same period
Our push-back to that push-back is as follows:
1) Fundamental reasons for movements in financial markets and assets can only be known after the fact in the rear-view; the technical set-ups tell you in advance, what type of fundamental news is likely to occur. One only needs a rough fundamental understanding of the world to fill in what the proximate fundamental catalyst might be given a certain technical set-up.
2) An astute observer could have identified the technical set-up in the Yen as being precariously positioned to the downside as far back as August, thus allowing one to be both long the Nikkei and short the Yen at the same time.
Anyhow, given channel support in the chart above is some 25% lower, the Nikkei is apt to continue out-performing the SPX over the intermediate-term until that support is reached.