Approaching the "Death Cross"! Korean stocks hit "Black Thursday", KOSPI continuously falls below the 200-day moving average, is a prolonged bear market coming?

The Korean stock market is teetering on the edge of a technical pattern risk. After KOSPI consecutively broke below its 200-day moving average, it plunged over 7% again on October 15, triggering multiple circuit breakers, as foreign investors recorded net sales for eight consecutive trading days, accumulating more than 16 trillion won. Technically, if a "death cross" materializes—combined with the strengthening expectations of a U.S. Federal Reserve rate hike and doubts about AI investment profitability—whether the Korean stock market can recover above the 200-day moving average within the next two weeks will be a key watershed in determining whether this downturn is a short-term fluctuation or the start of a long-term bear market.

On October 15, KOSPI closed at 5554.22 points, plunging 454.59 points in a single day, a drop of 7.57%, and at one point during the session dropped to around 5400 points. Both KOSPI and KOSDAQ markets successively triggered the sell sidecar and the first-level circuit breaker, marking the first simultaneous circuit break for both markets in two and a half months. Foreign investors registered a net sale of KOSPI worth 4.8196 trillion won (about 3.6 billion USD) in one day, making them the main driver behind the plunge.

The trigger for this plunge was the unexpectedly high U.S. September CPI data—year-on-year growth of 3.7%, higher than August’s 3.4%, which raised market concerns that the Federal Reserve could raise rates again at its October 27–28 meeting. Meanwhile, corporate bond yields for AI infrastructure company Coreweave soared to 14.8%, and its share price plunged 15.5% in a single day, intensifying doubts about the sustainability of AI investment. The Nasdaq index fell 1.88%, and Nvidia dropped over 3% on the same day.

Technical Alert: 200-Day Moving Average Breached, Historical Data Reveals Two-Week Life or Death Window

It is not uncommon for KOSPI to fall below its 200-day moving average, but the depth and speed of this current drop has made the market highly vigilant.

The 200-day moving average connects the average closing prices of the last 200 trading days (about 10 months) and is a core technical indicator for determining long-term trends—prices above the line signal a long-term upward trend, while prices below suggest a long-term downtrend. On October 13, KOSPI closed at 6035.35 points, 5.5% lower than the 200-day moving average (6,385.43 points)—the first time this year it has breached this line; on October 14, it fell further to 6008.81 points, widening the gap versus the 200-day line (6395.03 points) to 6%. The October 15 plunge pushed KOSPI down to 5554 points, further increasing the deviation from the 200-day moving average.

According to analysis from Korean media Chosun Ilbo based on KOSPI closing data since 1995, there have been 124 instances where KOSPI broke below the 200-day moving average and then recovered. In 71 cases, the recovery occurred within three trading days; if the window is extended to 10 trading days, 91 cases saw a recovery—that is, about 70% of the time, the break was resolved within two weeks.

However, the longer KOSPI stays below the 200-day moving average, the higher the risk: if it remains below for more than 5 trading days, there is a 34% probability that this will evolve into a downturn lasting more than three months; if it stays below for more than 10 trading days, the probability rises to 43%; for more than 20 trading days, it climbs to 64%.

It’s worth noting that a steep drop on the first day does not necessarily mean a long-term bear market. On October 13, KOSPI’s first-day deviation from the 200-day moving average was over 5.5%, the second time this has happened since 1995. The first occurred on August 5, 2024, with a deviation of 7.1%, but the index returned above the 200-day moving average within seven trading days. In contrast, for 16 instances of long-term deviations (over three months) in history, the initial deviation on the first day was mostly within 2%, followed by a slow descent—the Asian Financial Crisis in 1997 and the Global Financial Crisis in 2008 both belonged to this pattern.

Death Cross Approaches: Could Form In 16 Trading Days

In addition to losing the critical 200-day moving average, another technical warning signal has emerged for the Korean stock market: the “death cross” is approaching! Although it has not yet appeared, it is now in countdown mode.

The death cross refers to the 50-day moving average crossing below the 200-day moving average, meaning the two-and-a-half-month average price has dropped below the ten-month average. It is generally seen as a confirmation that a short-term sharp decline has reversed the medium-term trend, rather than serving as a new warning.

If KOSPI continues to hover around 6,000 points, the death cross will likely form after approximately 16 trading days, around the beginning of November.

Historical cases underline the severity of this risk: On September 27, 2024, KOSPI broke below the 200-day moving average on the very day the death cross occurred, and continued to decline for 92 trading days thereafter.

Additionally, the 200-day moving average itself is still climbing—from 6,221.64 points on September 21 to 6,395.03 points on October 14, rising about 10 points per day. This means KOSPI’s target for recovery is rising continuously. If it stays near 6,000 points by the end of the Federal Reserve meeting on October 28, the 200-day moving average will increase to about 6,490 points. By then, KOSPI would need to rise more than 8% from its October 14 closing price to reclaim it, making a recovery increasingly difficult as time goes by.

Crash on the Ground: Foreign Investors Sell Off, Circuit Breakers Triggered, Semiconductor Sector Hit Hardest

The market action on October 15 could only be described as brutal.

KOSPI opened with a sharp drop of 5.59% and subsequently expanded its losses to around 9% during the trading session, falling to near 5400 points. KOSPI and KOSDAQ both triggered the sell sidecar and primary circuit breaker, suspending trading for 20 minutes in each market—the first simultaneous trigger since July 29.

Foreign investors were the main sellers behind this plunge. Foreign investors net sold 4.8196 trillion won (3.6 billion USD) on KOSPI in a single day, with cumulative net sales over the past eight trading days reaching 16.1 trillion won (12 billion USD). Individual and institutional investors net bought 2.145 trillion (1.6 billion USD) and 2.0047 trillion won (1.5 billion USD), respectively, absorbing the dumping from foreign investors. Notably, foreign investors have net bought KOSPI 200 futures for four consecutive trading days, distinctly diverging from their massive selling in the spot market.

At the sector level, electrical and electronics led declines, dropping 10.13%; machinery and manufacturing were down 8.44% and 8.61%, respectively. The falls in semiconductor stocks were particularly severe: Samsung Electronics fell 9.48%, SK Hynix dropped 11.06%, SK Square declined 10.21%, and Samsung Electro-Mechanics tumbled 15.36%. The power equipment sector also plummeted, with Hyosung Heavy Industries dropping 14.71%, LS ELECTRIC down 12.13%, and HD Hyundai Electric falling 10.31%. KOSDAQ closed at 760.82 points, down 7.65%, with all of the ten largest market cap stocks closing lower.

Daishin Securities analyst Lee Kyung-min pointed out that this sell-off is the result of high interest rate pressure, concerns over the sustainability of AI investments, intensifying competition in the storage market, as well as foreign selling pressure and domestic supply-demand imbalances. He indicated that the first support range for KOSPI is expected to be between 5262 and 5593 points.

Macroeconomic Pressure: Triple Blow From High Interest Rates, Fears of AI Bubble, and Middle East Tensions

Of note, behind this wave of decline, negative macro factors are accumulating and resonating.

The first is U.S. interest rate pressure. According to the U.S. Department of Labor, September's CPI rose 3.7% year-on-year, and core CPI increased 2.6% year-on-year, both exceeding market expectations. The U.S. 10-year Treasury yield at one point surged to 5.32% before retreating to around 5.12%, but concerns about another Federal Reserve rate hike at the October 27–28 meeting are intensifying. Higher interest rates directly increase financing costs for companies building AI data centers.

The second is skepticism over AI investment profitability. Coreweave’s corporate bond yield surged to 14.8%, highlighting the vulnerability of AI infrastructure companies' heavy reliance on external financing rather than internal cash flow to sustain large-scale capital expenditures (CAPEX). Anthropic reported Q3 revenue of $16.8 billion, up 46% quarter-on-quarter, achieving profitability and positive free cash flow, but it did not eliminate market concerns about the slowing return on AI investments. China’s CXMT is planning to commercialize the next generation of DRAM, further intensifying concerns about competitiveness in the memory market.

The third is Middle East tensions and oil prices. Brent crude oil prices remain high at about $106 per barrel, adding extra pressure from inflation and market instability.

Kang Jin-hyuk, analyst at Shinhan Investment Securities, noted that foreign investors have been net selling spot stocks for eight consecutive trading days; panic selling of large-cap semiconductor stocks such as Samsung Electronics and SK Hynix is spreading, with the entire AI value chain extending its downturn.

Earnings Season Approaches: Two-Week Validation Window, Storage Stocks May See Mid-Term Buying Opportunities

As the market grapples with both technical and macro pressures, the Korean Q3 earnings season will officially kick off the week of October 19, providing a crucial validation window for fundamentals.

According to the latest report by J.P. Morgan’s Asia Pacific Equity Research Team on October 15, Samsung Electronics' preliminary results were in line with expectations, LG Electronics fell short, and LG Energy Solution exceeded forecasts—three early signals setting the tone for this earnings season. J.P. Morgan analysts, including Jay Kwon, believe the technology and financial sectors are likely to be the main battlegrounds for this earnings season.

After meeting with more than 100 Asian investors in Singapore, Kuala Lumpur, and Hong Kong, Jay Kwon notes a clear divergence between top-down views on the sustainability of AI spending and bottom-up views focused on fundamental supply-demand data for memory. But from a mid-term perspective, the risk-reward profile has shifted favorably, and investors are advised to accumulate during the recent pullback.