"Chill out, man. I told you it was an accident. You probably went over a bump or something." It was amusing to witness a pack of hardened Nikkei arb traders stare at the KOSPI chart in slack-jawed drooling animal envy because chances are tomorrow's 225 serial expiration won't be even one-fifth as exciting (yeah OK the calc. and settlement mechanisms are totally reversed but doesn't stop you from wondering what might have been. (see first attachment). As for onshore Tokyo action, the whole market was pretending that Ireland doesn't matter, CSCO's post-results trauma would stay local (-12%), and that the last 2 days of 800 basis points in outperformance by Japanese banks over TPX real estates doesn't carry some sort of broader implication (see 2nd attachment). NKY just can't seem to meaningfully correct"

Eoin Treacy's view Thanks to John Clappier for his esoteric take on the Japanese market. Option expiry is often the cause of some increased volatility and sometimes marks an inflexion point for the market concerned. Where an instrument has trended strongly for a number of consecutive weeks causing some leveraged traders to consider taking profits, the odds increase that option expiry will have more profound effect. However, option expiry on its own is not usually enough to initiate a medium-term peak. The Indian stock market experienced some intraday convulsion a few weeks ago on option expiry but while the event raised anxiety levels on a short-term basis, it was not enough to provoke more widespread selling pressure.

Today's key day reversal on the Kospi and downward dynamic on the Kospi Financials Index probably mark a peak of at least short-term significance. However, additional follow through would be required to confirm the signal. Over the medium-term, the Index is not particularly overextended relative to the 200-day MA and this may mark nothing more than a pause in the region of the 2007 peak prior to reasserting the overall uptrend.

The Nikkei-225 has rallied impressively over the last 10-days, helped by the recent weakness of the Yen, particularly against the US Dollar. Last week's upside weekly key reversal and additional follow through this week suggest that a low of at least near-term significance has been reached. While tomorrow's option expiry may be cause for increased volatility, how much the Yen weakens is likely to be a much more important factor for the Index.

The US Dollar has been ranging between ¥80 and ¥82 for the last month and successfully broke above ¥82 yesterday. A reversion towards the 200-day MA, currently near ¥86 may be underway and a clear downward dynamic would be required to question this outlook.