The KOSPI continues to lead market development in Asia, excluding China and Japan. China has similar breakout behavior, but it is from a downtrend. Japan remains in a tight trading range, again in a downtrend. It is Korea that is breaking out after an uptrend retreat.
The same pattern of breakout is seen in the Straits Times Index , the KLCI and the Hang Seng. The Korean breakout started a little earlier and is more powerfully developed.
The KOSPI is defined by an upward sloping triangle. This is a powerful and reliable chart pattern that signal up trend breakouts. The pattern is also used to help set the upside targets.
The up sloping triangle pattern in the KOSPI is not a perfect pattern. This means that we apply the upside targets with a higher degree of caution. The probability of success is reduced. The upside target is calculated by measuring the base of the triangle.
We have used the widest point in the pattern. The upside projection has a target near 2,150. This is a tentative target because there is a strong historical resistance level near 2,100.
This suggests the KOSPI breakout can move quickly to 2,100 and then begin to lose momentum as it moves towards the upper target near 2,150. KOSPI traders will tighten stops as the index moves near to 2,100.
This loss of momentum is significant because it suggests that other Asian regional indexes will follow the same pattern of behavior. This limits the potential of a market rise. It does not suggest a market retreat, but there is an increased probability of a market consolidation. The pattern of consolidation, particularly on the KOSPI will provide a template for the next general market move.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders - . He is a regular guest on CNBC's Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.
If you would like Daryl to chart a specific stock, commodity or currency, please write to us at ChartingAsia@cnbc.com. We welcome all questions, comments and requests.
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