Geopolitical tensions intensified after North Korea conducted its sixth and most powerful nuclear test on Sunday, detonating what it said was a hydrogen bomb meant for intercontinental ballistic missile. The United States warned it could launch a “massive” military response if it or its allies were threatened. Most of the Stock Markets in the World reacted negatively to the news with stocks from around the World ending the day in the red.
We believe what we saw was some panic selling and not a huge sell off. We believe that markets move on the basis of cycles and swing sequences and news just acts as a catalyst rather than driving the markets. We believe North Korea’s nuclear test poses little threat to the rally in Indices as mid-long term cycles are still bullish. We will present long-term view in South Korean Stock Exchange to support our view that any sell off seen due to escalating geo-political tensions is still a buying opportunity.
$KOSPI-KOR denies huge sell off due to North Korea
KOSPI-KOR Index from South Korea is within 7th swing from 1980 low but has not yet reached the ideal target area. Sequence from 2008 low is also incomplete and calls for more upside towards 2891 – 3362 area as far as dips hold above 2011 low. As the sequence from 1980 and 2008 low in KOSPI-KOR is incomplete, any dips remain a buy in 3, 7 or 11 swings as far as pivot at 2011 low remains intact. North Korea’s nuclear test or any military offensive should have a direct impact on South Korea’s stock exchange and as the sequence is bullish, we believe nothing drastic will come out of the current scenario, it can cause a pull back but that should be a buying opportunity looking for a move higher towards 2891 – 3362 area.
$KOSPI-KOR Long-Term Elliott Wave View
$KOSPI-KOR rally from 1980 low could be viewed as a double three Elliott wave structure or it could be viewed to be in wave (III) of an incomplete Leading Diagonal structure. In either case, rally sequence is incomplete and as dips hold above wave ((2)) and more importantly “b” low, expect the Index to resume the rally towards 2893 – 3362 area to reach the extreme from 1980 low. From this area, Index can see a larger pull back to correct the cycle from 1980 low or at least from 2008 low labelled as (x) / (II). We don’t like selling the Index and expect to see buyers appearing after dips in 3, 7 or 11 swings as far as pivot at 2015 and 2011 lows remain intact.
Will Trump Really “Totally Destroy” North Korea?
US President, Donald Trump, threatened to “Totally Destroy” North Korea during his speech in United Nations assembly on 19th September 2017 and further added that “Rocket Man” is on a suicide mission for himself and for his regime. “The US has great strength and patience,” Trump said. But he added: “If it is forced to defend ourselves or our allies, we will have no choice but to totally destroy North Korea. He said the US was “ready, willing and able” to take military action, but said hopefully that would be unnecessary if the rest of the world stepped up its efforts to constrain the Pyongyang regime.
Trump speaks at UN Assembly
(Image taken from www.theguardian.com)
On 3rd September 2017, North Korea conducted it’s 6th Nuclear test which sent stock markets around the world tumbling lower but only to bounce back very strongly. We were quick to highlight in our article on 4th September 2017 that Nuclear tests posed little threat to Indices and rally should resume. Since then, we have seen US Indices extending their rallies to new highs and even Nikkei Index from Japan managed to break above 2015 peak to create an incomplete sequence from 2009 low. Today, we will revisit the long-term chart of $KOSPI-KOR which shows rally has extended since North Korea’s Nuclear test and we don’t think it’s due for a major correction any time soon. Of course, the rally will not be in a straight line and there will be pull backs in-between but those pull backs should be nothing more than a buying opportunity.
$KOSPI-KOR Long-term Elliott Wave View
Chart below shows that Index has made new highs and extended the rally since 3rd September 2017. Next level of interest is 2699.44 which is 161.8 extension of ((1))-((2)) where wave ((3)) is expected to complete. From that area, expect a pull back in wave ((4)) to develop to correct the cycle from 8.1.2015 (1800.75) low and extend higher again towards 2891 – 3365 area which is the 100 – 123.6 extension area of the first 3 waves rally from all time low.
In conclusion, $KOSPI-KOR suggests that Donald Trump’s threat to “Totally Destroy” North Korea and “Rocket Man” would remain just a threat for the near-future and at least until 2891 – 3365 area is seen. Market is technical and moves based on cycles and sequences, news and Geo-political tensions can change short-term path but don’t have the power to alter the underlying cycles and sequences of a given instrument.
