KOSPI and NIFTY 50 Technical Outlook: Weakness Ahead?

KOSPI, KOSPI Composite Index, NIFTY, NIFTY 50 Index – Technical Outlook:

• KOSPI has scope to decline further
• NIFTY’s short-term upward pressure could be about to fade
• What is the outlook and what are the key levels to watch?

KOSPI TECHNICAL FORECAST – BEARISH

The KOSPI Composite Index’s break this week below key support points to potential further downside in coming days and weeks.

South Korea’s equity benchmark has been in a downtrend for months and this week’s price action reaffirms the bearish outlook. The index has broken below the July low of 2,277, coinciding with fairly strong support at the January 2020 high. In the recent past, a break below similar significant support has led to an extended decline at least for a few days/few weeks before a consolidation has set in.

In terms of the quantum of decline, the past two downswings have been around 16%-17% following a failed test of resistance (see chart). Assuming the current downswing started in mid-August, there could be another 3%-4%, if history is any guide. Immediate support is at 2,150 (the 61.8% retracement of the 2020-2021 rise), stronger support is on the 200-month moving average (now at about 2,000).

On the upside, 2,277 is now initial resistance. The KOSPI would need to crack this level, at the very least, for the short-term downward pressure to ease. A decisive break above the 89-day moving average is needed for the medium-term downward pressure to ease – the last time the index was above this average was in August 2021.

KOSPI COMPOSITE INDEX Daily Chart

Chart Created Using TradingView

NIFTY TECHNICAL FORECAST – SLIGHTLY BEARISH

India NIFTY 50 index’s three-month uptrend appears to be losing its grip following a series of bearish developments on the daily charts in recent days.

The index has fallen below the key support area – an internal trendline of a rising channel from June and the end-August low of 17,166 (see chart). Put together, this suggests that the index has shifted to a ‘lower gear’. Let us explore this further. A rising channel signifies an uptrend. However, within the channel, one can intuitively assess the strength of the uptrend. If prices hover around the upper edge of the channel, it would imply strong momentum, while a larger amount of time spent around the lower edge of the channel could imply a weak uptrend, making it vulnerable.

The NIFTY is now approaching the lower edge of the channel and is looking vulnerable to a break below. A decisive drop below 16,700, roughly coinciding with the June high of 16,794 would confirm that the three-month-long upward pressure has faded, opening the way towards 16,300 (the 61.8% retracement of the June-September rally). Strong support is at the June low of 15,183. On the upside, at the very least, the index needs to fill the bearish gap created over the last weekend if the uptrend were to remain intact.

NIFTY 50 INDEX Daily Chart

Chart Created Using TradingView

— Written by Manish Jaradi, Strategist for DailyFX.com