South Korea’s Kospi Index May Rise to 1,882: Technical Analysis

(Bloomberg) -- South Korea’s benchmark stock index may rise to 1,882 points by March or April, according to technical analyses of the market by Dongbu Securities Co. Since the start of 2009, the Kospi index has formed a so- called “ascending channel,” which suggests it will trade higher as long as it doesn’t move below the base of the channel, Chi Ki Ho, a technical analyst, wrote in a report yesterday.
“There are no signs of an upward tilt easing and falling through the base yet,” the analyst said. “Namely, the market remains strong.”

The Kospi index fell 0.5 percent to 1,605.02 as of 11:16 a.m. in Seoul, and Chi’s forecast represents a 17 percent advance. The measure has climbed 43 percent this year, compared with a 51 percent gain in the MSCI Emerging Markets Index.In a further study, the Kospi may be in the middle of the third or fifth wave of an Elliott Wave pattern, a model based on the theory that a market swing follows a five-wave structure: three upward movements and two down cycles. Each upward wave includes five separate sub-waves.The exact wave that the Kospi is in depends on when the starting point of first wave is defined, Chi said. “Whatever the case is, the third wave is the strongest in Elliot Wave theory and therefore its trend doesn’t change easily,” he added.

Based on these patterns and an assumption that the U.S. economy recovers as fiscal stimulus spurs demand, the Kospi has the potential to rise to 1,882 points next spring, Chi said.The Elliot Wave principle was developed by accountant Ralph Nelson Elliott during the Great Depression. It measures investor psychology and suggests their behavior and the movement of the stock market occurs in repeating patterns.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.