South Korea Looks Vulnerable

We like to look to all areas of the globe for our equity allocations. In some cases there are markets that look strong, but there are others that look weak and vulnerable for further correction. One area that we're concerned with is South Korea. After a potential breakout this past December, the index failed hard and peaked on the last trading day of the year.

This is a daily bar chart of the iShares MSCI South Korea Fund ($EWY). It's easy to notice the false breakout that then led to the uptrend line break to start the 2nd quarter. At this point, it looks like we're below key support levels in an already broken market. Without a swift recovery right here, I would expect further deterioration in this space in Q2.

Last Summer's lows would be the next level of support followed by the Fall of 2011 lows. We will continue to evaluate South Korea going forward, but it is certainly on our "weak and vulnerable" list from around the world. We would have to consolidate right here for some time and/or get back above this broken support for us to even consider it to the long side. But right now, that does not seem like a high probability outcome.

Also, I think it's important to keep in mind that Samsung Electronics represents almost a quarter of this entire index.

Tags: $SSNLF $EWY