Home Sports NIFTY 50 and KOSPI Technical Forecasts: Is there still downside?

NIFTY 50 and KOSPI Technical Forecasts: Is there still downside?


KOSPI Composite Index, NIFTY 50 Index, South Korea, India – Technical Forecast:

  • The KOSPI risks weakening further.
  • Nifty’s three-month uptrend may come to an end.
  • What is the outlook and what are the key levels to watch?

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A retreat from strong resistance and a subsequent break below key support indicate further weakness in South Korea’s KOSPI Composite index.

In mid-August, the index retreated from key resistance at the 89-day moving average (DMA) for the third time in nine months. Additionally, an early September break below the horizontal trendline support at 2432 confirms that the downtrend has resumed. Similar pullbacks from the 89-DMA followed by bearish breaks in January and June led to an increase in downward momentum as the bears gained control (reflected in the strength of the directional movement index minus; see chart).

The subsequent decline in the two previous episodes was about 11%. While history may not repeat itself, there is an increasing risk that the KOSPI will at least retest the July low of 2,277 (although an 11% decline from 2,432 would indicate a move to 2,165). On the upside, the index needs to break above the August high of 2546, roughly aligned with the 89-DMA, to ease downward pressure.

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Engulfing bearish pattern on the weekly candlestick chart of the NIFTY 50 index in India near the key resistance is a sign that the three-month bullish momentum may be fading. In the short term, the index may end up in a range.

NIFTY touched a new five-month high last week but failed to sustain the gains till the latter part of the week. In the process, the index posted a bearish reversal pattern on the weekly chart. The pullback came from strong resistance defined by the horizontal trend line from April at 18,100. This follows a similar bearish reversal pattern (Evening Star candlestick formation) at resistance a month ago. A consistent deviation at higher levels is a sign that the bulls have had to take a back seat for a while.

On the daily chart, last week’s high was associated with a negative divergence (increasing index levels associated with weakening momentum; see chart). The index is now testing key support on the internal uptrend line within the rising channel from March. A break below the trend line would indicate that the index has moved into “low gear” within the rising channel. Such a break would shift focus to the crucial support of the late August low at 17,166 (also the neckline of the minor double top). Only a break below 17,166 suggests that the multi-week trend is under threat.

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— Posted by Manish Jaradi, Strategist at DailyFX.com


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