KOSPI and NIFTY 50 Technical Outlook: Drifting Lower

KOSPI, KOSPI COMPOSITE INDEX, NIFTY, NIFTY 50 INDEX – TECHNICAL OUTLOOK:

• KOSPI index falls below key support, reaffirms the multi-month downtrend.
• NIFTY 50 risks a break below crucial support.
• How much more downside for the indices and what are the key levels to watch?

KOSPI SHORT-TERM TECHNICAL OUTLOOK – BEARISH

South Korea’s Kospi Composite Index’s break below crucial support is a reaffirmation that the broader trend remains down.

The sequence of lower-highs-lower-lows since last year reflects how entrenched the downtrend is. Depending on the timeframe the pattern occurs (e.g. Hourly, Daily, Weekly, Monthly, etc.), the relevance differs. For instance, a downtrend in an hourly chart could have implications for a few days, whereas if it occurs on the Weekly chart, the pattern could unfold over months.

KOSPI COMPOSITE INDEX Daily Chart

Chart Created Using TradingView

The Kospi ended September falling below key converged support at the July low, coinciding with a horizontal trendline from 2019. This follows a break below the 200-week moving average a few months ago. The next (minor) support to watch would be 2030 (the mid-June 2020 low) followed by stronger support at 1840 (the 78.6% retracement of the 2020-2021 rally).

Having said that, oversold conditions and positive divergence on the weekly charts (falling index associated with a stalling in momentum) do raise the prospect of some sort of pause/consolidation given the index has lost 16% since August. A decisive break above immediate resistance at the July low of 2277 would confirm that the short-term downward pressure had faded. Still, the broader downtrend is unlikely to reverse while the index holds the upper edge of a declining channel from 2021 (now at about 2470).

NIFTY SHORT-TERM TECHNICAL OUTLOOK – SLIGHTLY BEARISH

The Indian stock market continues to be resilient, outperforming many of its peers on a year-to-date basis. From a multi-month perspective, the Nifty’s trend has been sideways essentially since, albeit a broad one, as the accompanying chart shows.

NIFTY 50 INDEX Daily Chart

Chart Created Using TradingView

Within the broad range, there have been tradeable swings, with the most recent one that began in June. However, since last month, cracks seem to have emerged in the uptrend since June. These are the failure in September to decisively break above the August high of 17992 and the fall ending September below the August low of 17166.

While the upward bias from June is still intact as it holds above the lower edge of a rising channel from March, the feeble rebound in recent days, raises the risk of a drop below the channel. A decisive break below the channel would confirm that the uptrend from June had reversed, putting the index back within its well-established, multi-month range. Subsequent support is at 16300 (the 61.8% retracement of the June-September rise), followed by the mid-July low of15858.

— Written by Manish Jaradi, Strategist for DailyFX.com