[MarketING] Resistance Levels Not Easy to Break, Is KOSPI Correction Starting?

KOSPI Drops Below 2460 Due to Institutional Profit-Taking
Short-Term Correction Possible in February

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] The KOSPI closed lower after giving up the 2460 level, marking a decline for the first time in six days. It is expected to be difficult to break through the previous high-level resistance, leading to a forecast of a short-term correction in February. However, there are also projections that the February correction could be the last low point of the year.

Decline Due to Institutional 'Selling'... Short-Term Correction Expected in February

On the 30th, the KOSPI closed at 2450.47, down 33.55 points (1.35%) from the previous session. The KOSDAQ ended the day at 738.62, down 2.63 points (0.35%).

Profit-taking sales by institutions poured out, pulling the index down. On that day, institutions sold 412.1 billion KRW in the KOSPI market and 54.6 billion KRW in the KOSDAQ market. Foreign investors seemed to switch to a selling trend for the first time in 12 trading days but defended the KOSPI 2450 level by recording a net purchase of 16.2 billion KRW at the end.

Kim Seokhwan, a researcher at Mirae Asset Securities, explained, "The KOSPI and KOSDAQ started the day higher but turned lower as profit-taking sales emerged," adding, "The KOSPI's decline was amplified by institutional profit-taking trades."

It appears difficult to break through the previous high-level resistance that has acted as a long-term barrier. Jung Inji, a researcher at Yuanta Securities, said, "During the KOSPI's rise, it approached the previous high-level resistance around the 2500?2550 range," adding, "The relative strength index (RSI) has already reached the overbought zone, and since this price range has acted as resistance for about half a year, strong resistance is expected, making a breakthrough difficult."

Valuation pressure has also increased due to the continued rise. The KOSPI's 12-month forward price-to-earnings ratio (PER) rose to 12.5 times, the highest level since April 2021. Choi Jaewon, a researcher at Kiwoom Securities, noted, "Since the beginning of the year, the short-term rapid rise in stock prices has increased the 12-month forward PER burden in sectors such as semiconductors, steel, transportation, securities, and chemicals compared to their recent one-year valuations," adding, "The favorable supply-demand environment for emerging markets and expectations of a slowdown in the US Federal Reserve's rate hikes have been quickly reflected in the stock market. As the market digests this, there is a possibility of profit-taking, especially in sectors with high short-term valuation burdens."

February Correction May Be the Last Low Point of the Year

Although there is a possibility of a short-term correction in February as a fatigue accumulation and confirmation process following the sharp rebound in January, the market is expected to show a 'low at the start, high at the end' trend this year, leading to forecasts that February could mark the low point.

Park Seungyoung, a researcher at Hanwha Investment & Securities, said, "The rebound in the domestic stock market is expected to end around the February Federal Open Market Committee (FOMC) meeting," adding, "With expectations of a policy pivot at the February FOMC already priced in, the domestic market's PER is expensive compared to historical averages and emerging markets, making it burdensome. It seems advisable to reduce stock exposure around the February FOMC."

There is a forecast that the market may hit this year's low in February. Park explained, "If the market corrects in February, it could be the last low point of the year," adding, "The domestic economy is expected to pass its low point in the second quarter, and the stock market will bottom out one quarter earlier. Manufacturing indicators and the OECD leading economic index of major countries such as the US and China are also near their lows."

Researcher Jung said, "The medium-term lows of major global stock markets, including the KOSPI, are rising, so even if short-term gains are limited at the current price level, the market is progressing in a direction favorable for long-term gains. Therefore, a strategy to find buying opportunities during short-term corrections is necessary."