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The South Korean Stock Market May Be Signaling A Bottom For Global Equities

By Michael KramerStock MarketsMar 06, 2020 11:39AM ET
www.investing.com/analysis/-200513909
The South Korean Stock Market May Be Signaling A Bottom For Global Equities
By Michael Kramer   |  Mar 06, 2020 11:39AM ET
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This post was written exclusively for Investing.com

The equity markets continue to be in a state of flux as they attempt to climb from their Feb. 28 lows, with massive price swings daily. However, there continue to be signs of improvement that are slowly taking shape. To find one of those signs, one must swing over to the opposite side of the world and turn to the South Korean stock market, away from the volatility of the U.S. equity market.

South Korea has been one of the hardest-hit countries by the coronavirus, and yet the KOSPI has been showing improving trends, that may even suggest the stock market has bottomed. What may be even more interesting is that the S&P 500 may be following the KOSPI’s lead higher, as the two begin to diverge.  

KOSPI Daily Chart
KOSPI Daily Chart

KOSPI

The KOSPI has fallen by roughly 13.5% from its high on Jan. 20 through March 2. But since March 2, the index has risen sharply, by almost 5%. Now, riding an uptrend, the index is attempting to push even higher, and take out a region of resistance that rest around 2,110. Should the KOSPI rise above that level, it could send the index back to almost 2,165 and a gain of roughly 4%.

KOSPI 60-Minute Chart
KOSPI 60-Minute Chart

The improving KOSPI shouldn’t go unnoticed by investors, because it could be an indication that perhaps conditions are improving or perceived to be improving among investors in that market. Should the KOSPI continue to rise, it could eventually spill over to stocks here in the U.S.

Likewise, if investors in South Korea saw the situation as growing worse or not improving, one would think that the market would either not be rebounding or would be making new lows daily. That is not what is happening.

Diverging Trends

Diverging Trends
Diverging Trends

Since bottoming on March 2, the KOSPI has been steadily trending higher while the S&P 500 has been trading in a sideways pattern, while the German DAX continues to flatline along the bottom. However, as the chart shows, the KOSPI is beginning to diverge from the other two indexes and could be signaling that a reversal in the S&P 500 and DAX will soon follow.

Bottoming Process?

The S&P 500, on the other hand, continues to trade in an extensive trading range between 2,950 and 3,130 with no clear sense of direction. It would give the impression that the market is directionless at this point and is either in the process of forming a bottom or preparing for its next leg lower.

The view that the market will continue to head lower seems to come in contrast to what we see in Korea. Additionally, there appears to be a reasonable chance the S&P 500 has already formed a bottom on Feb. 28. On that day, the index traded as low as 2,855.84, which is nearly the identical low on Oct. 3, 2019 of 2,855.94. It seems to be too much of a coincidence to be by chance; it was effectively the very starting point of the fourth quarter rally uptrend.

S&P 500 Daily Chart
S&P 500 Daily Chart

While several indicators would suggest the U.S. markets are oversold, the direction of other markets that have seen the most significant impact may be the best way to measure what happens next.

Nothing in life is for sure, and the market’s most significant challenge during this period is trying to figure out the potential damage the virus may have on the global economy.  However, it seems reasonable to use other parts of the world to help in making that assessment.

The South Korean Stock Market May Be Signaling A Bottom For Global Equities
 

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The South Korean Stock Market May Be Signaling A Bottom For Global Equities

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Comments (43)
Jonathan Wang
Jonathan Wang Mar 09, 2020 6:44AM ET
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Though sound logical, but Korea doesnt represent a more global market point of view. In my humble opinion
Mr Man
Mr Man Mar 08, 2020 11:12PM ET
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Somebody got their signals crossed.
Jeff Kim
Jeff Kim Mar 08, 2020 10:57PM ET
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Well, there is always the basement below ground
Marco Polo
Marco Polo Mar 07, 2020 11:03PM ET
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A few points to remember for the next 12 months 1.-Trump's Recession,  2.-Trump's Recession, 3-Trump Recession. After the Last Recession, it took the Market at least 12 months to stabilize, therefore it's way too early to resemble anything like the Feb/28/20 lows, the market without a doubt will make new lows, until the next competent, qualified President takes office. Trump has only made things worst than ever before increasing the National debt to astronomical numbers his budget added $8.3  trillion. It would also increase the U.S. debt to $28.5 trillion at the end of eight years, according to Trump's budget estimates? We can't let that big mistake happen again he'll bankrupt the country, the same way he has bankrupt all his business dealings, Casinos, Airlines, University, etc. Let the madness stop and stop pumping the market.
Bravery Juice
Bravery Juice Mar 07, 2020 5:11PM ET
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key word/s: MAY BE
Pw Wm
Rubberdong Mar 07, 2020 1:50PM ET
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Didnt even read the article as we ********well know nothing is bottoming out right now. Just here for the comments
Scott Silaika
Scott Silaika Mar 07, 2020 1:50PM ET
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article paid for by big bull lol
Emrah Unal
Emrah Unal Mar 07, 2020 10:58AM ET
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Numbers, support points and other things are worthless in this situation. It's not the dip, indicators and analysis is out the window. Dip is the day when no more new infections come.
Jamie Tanner
Jamie Tanner Mar 07, 2020 7:41AM ET
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Seems not to be taking into account S Koreas quite effective response to the outbreak. Given that the US response will be calamitous by comparison, with such a large percentsge of the population unavle to access any pertinent medical care, seems foolish to think the oending outbreak in the US wont delress market performance there.
Dee Mehta
DMFINANCE Mar 07, 2020 6:28AM ET
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Michael as usual a hooe article . No facts all hopes
db cooper
db cooper Mar 07, 2020 2:21AM ET
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One more thought:   By early summer, and with warmer weather, some physicians are predicting there will be close to ZERO new cases.  This is nothing more than a nasty version of the flu......... and it will end the same way the flu season does, every year.  Mostly media hype at this point.
db cooper
db cooper Mar 07, 2020 2:17AM ET
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I DO NOT believe the S Korean market is indicative of North American markets.  The article is rubbish.
Young Lee
Young Lee Mar 07, 2020 12:00AM ET
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A problem in the recent Korean market is that most major traders take short positions, and long for the put options. On the other hand most minor traders like individuals voraciously buy. We will see what is going on next week.
Stefon Walters
AgapeGrace Mar 06, 2020 8:15PM ET
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Agreed. Kospi is a direct leading indicator for semiconductors, which is the “tip of the spear” for the US markets. As go Kospi goes the semis goes the US market. Bottom could very well be in, especially after today’s Friday closing rally off the lows. Excellent observation and analysis. Thank you Michael.
robert ybarra
robert ybarra Mar 06, 2020 7:42PM ET
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If you sit on the sidelines you'll just not make money. If you're so sure why dont you short it ??? You either are and are just advertising your position or you really dont know.. But this is the time when money is made .. You'll wish you at least played years from now ... cuz you had a shot but you sat out the dance cuz of fear .. warren b says to buy the fear ..
Mark Hyunjun Lee
Mark Hyunjun Lee Mar 06, 2020 7:05PM ET
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south korean here. the market is not bottomed yet. Samsung and SK consist 40% of Korean stock market meaning rest 60% are going down pretty bad
Alejandro Rosario
Alejandro Rosario Mar 06, 2020 4:35PM ET
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Nah. The bottom is not in yet. This will get worst before it gets better
Keith Reilly
Keith Reilly Mar 06, 2020 12:55PM ET
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i have a feeling we have way more downside. While it may be true this thing is that scary from a logical scientific point of view, i am seeing people way over react. Clients are all stopping travel and people are very worked up. Before this improves in the US, it will logically get worse as far as spread and related stories. So why wait for the panic sell. Sit on the sidelines, markets down 9% YTD. and dropping another 15-20 from here would just be an undo of last years gains. People are going to over react way more..spreads are blowing out. Im happy to watch this unfold and playout over the next 60 days.
Shannon Reickert
Shannon Reickert Mar 06, 2020 11:45AM ET
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When has the S. Korean stock market signalled the top or bottom of any global business cycle? Follow the US market.
God Damn America
God Damn America Mar 06, 2020 11:45AM ET
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Believe it or not, it has been. There is several reasons. But I think it is not bottoming out.
Rémy Boulaye
RémySZ Mar 06, 2020 11:36AM ET
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With headlines like on Bloomberg : "Cases top 100 000", why they don't say in the same time that 55 997 persons have already recovered. Not surprising that people overeact to this concern.
Dar Smith
Dar Smith Mar 06, 2020 11:36AM ET
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Also, why don't they say that "cases detected and confirmed" since this isn't considering undetected cases. In the US, so far we have 19 deaths but the cases are just over 400 meaning we have about a 5% mortality rate! So either we're completely screwed or were missing thousands of cases.
Jeff Kim
Jeff Kim Mar 06, 2020 11:15AM ET
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The instiutions are selling and leaving the Korean market, it’s only the individuals who are trying to time the bottom buying in, propping up the market right now. Soon they’ll loose patience, hope, and leave as they try to trim their loss
Bob Blahblah
Bob Blahblah Mar 06, 2020 10:06AM ET
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for the average person who is losing their retirement, i weep comrades. for every shill, i dance
Ravjir Urjinee
Ravjir Urjinee Mar 06, 2020 9:01AM ET
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You crazy Man. Do ypu even know why this happening. Credit spreads are widenning. Corporations cant borrow and buy back stock. I dont think tgey can fix it with rate cuts. Fed needs to directly phurchase assets. Long way before a bottom.
Ravjir Urjinee
Ravjir Urjinee Mar 06, 2020 9:01AM ET
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Phurchase assets durectly to stop the bleeding. Even that just put in a temporary bottom! Only hope for tge stock Market is inflation. Everything goes up in inflation!
Bob Blahblah
Bob Blahblah Mar 06, 2020 9:01AM ET
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spoken like a true commie comrade
Jonathan Miguel
Jonathan Miguel Mar 06, 2020 9:01AM ET
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actually they will refinance their debt at a lower rate so yes they could do some buy backs with the discounted spread...
Rémy Boulaye
RémySZ Mar 06, 2020 9:01AM ET
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Bob Blahblah  Maybe, but in China, there is the "National Team", nickname of a network of stated-own funds bying stocks in order things don't go too far in time of panics, which figures are a secret. You can think what you want, but me I think that's a good system.
fabrizio xx
fabrizioxx Mar 06, 2020 9:01AM ET
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Ravjir Urjinee  yes it is arriving with elicopter money everywhere, like in Japan
Gideon Strassmann
Gideon Strassmann Mar 06, 2020 8:32AM ET
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Next Monday the S&P will test  around 2300
John Mars
John Mars Mar 06, 2020 8:32AM ET
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Not next week, but soon.
GQED Grant
GQED507 Mar 06, 2020 8:23AM ET
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Holding and buying low that double dip is very reliable..
Jan Skilbrei
Jan Skilbrei Mar 06, 2020 8:11AM ET
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thanks all who modify, and give the other side of the equition, remember late 2018, many bougth way toovearly, this time something serious is happening, from higher multiples
Rémy Boulaye
RémySZ Mar 06, 2020 8:11AM ET
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I agree
 
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