[MarketING] Will KOSPI Cross the Long-Term Trend Line This Time?

The KOSPI has continued its upward trend for the third consecutive day. Having settled above the 2500 mark, the KOSPI is expected to attempt to break through the 200-week moving average, a mid- to long-term trend line. It is anticipated that stock price volatility may increase during the process of breaking through the 200-week line due to profit-taking sales.

As of 10:20 a.m. on the 11th, the KOSPI was at 2431.71, up 19.63 points (0.78%) from the previous day. The KOSDAQ recorded 887.23, down 0.55 points (0.06%). The KOSPI has risen for three consecutive days, reaching the 2530 level, while the KOSDAQ, after starting higher, turned downward and is moving in a slightly weak range.

On the 11th, the KOSPI index opened at 2523.33, up 11.25 points (0.45%) from the previous trading day, as dealers were working at the Hana Bank headquarters in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

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Following a mixed close in the U.S. stock market the previous day, the domestic market is also showing mixed trends. On the 10th (local time) at the New York Stock Exchange, the Dow Jones Industrial Average rose 0.30%, the S&P 500 increased by 0.10%, while the Nasdaq Composite fell by 0.03%.

Sangyoung Seo, a researcher at Mirae Asset Securities, said, "Despite economic indicators raising concerns about a recession in the U.S., the market digested selling pressure calmly and reduced losses or turned upward, which is positive for the Korean stock market." He added, "Although the Philadelphia Semiconductor Index rose 1.8%, its impact is expected to be limited since the semiconductor sector's strength has already been reflected."

On March 7, the U.S. nonfarm payrolls for March were announced, showing a decrease from 326,000 in the previous month to 236,000, indicating a contraction in the labor market. Additionally, the Conference Board's Employment Trends Index for March, released the previous day, slowed from 116.75 to 116.24, suggesting that job growth will decelerate over the coming months. Seo analyzed, "Labor demand is cooling across most sectors, so overall job growth is expected to continue slowing. Particularly, GDP growth is projected to turn negative in the second half of 2023, and the unemployment rate is expected to rise to 4.5% by early 2024, leading to further job losses and heightening recession concerns."

As the KOSPI continues its recent upward momentum, attention is focused on whether it can break through the 200-week moving average, a mid- to long-term trend line. Since last year, the KOSPI has attempted to break this line four times but has not succeeded.

Jiyoung Han, a researcher at Kiwoom Securities, said, "With the recent price increase, the KOSPI is once again close to breaking the 200-week moving average (2526 points), a mid- to long-term trend line. Given that attempts to break this line in June, August, and November last year, as well as January this year, ended unsuccessfully, technical selling and trading battles are expected during this attempt, which could increase price volatility near the 200-week line."

There is an analysis that downward rigidity has emerged in the index due to changes in the expected policy path of the U.S. Federal Reserve (Fed). Han explained, "The recent downward rigidity in major indices such as the KOSPI and Nasdaq mainly stems from the fact that central banks' expected policy paths are showing different patterns than before. Since last year, the Fed and other central banks' high-intensity tightening policies have exerted continuous downward pressure on the stock market, but with the emergence of crises in small- and medium-sized banks and strengthened economic slowdown forecasts, the tightening cycle of major central banks is approaching its final phase, reducing the negative impact."

Attention should be paid to the impact of upcoming inflation-related indicators on the stock market, such as the U.S. Consumer Price Index (CPI) and the University of Michigan's inflation expectations, scheduled during the week. The March CPI, to be released on the 12th, is expected to rise 5.1% year-on-year, down from 6% in the previous month to the 5% range.

Namjung Moon, a researcher at Daishin Securities, said, "If the symbolic entry of the March CPI into the 5% range and the University of Michigan's April data confirm easing inflation expectations and improved consumer sentiment, it will reaffirm the ongoing disinflation and boost risk appetite."

Han added, "Considering the base effect from high inflation in the first half of last year and the relatively stronger downward pressure on prices from demand-side weakness due to economic slowdown, the overall downward trend in inflation indicators such as CPI and Personal Consumption Expenditures (PCE) remains intact. While short-term stock price volatility may increase around the U.S. CPI release, it is advisable to avoid reducing stock exposure."

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