South Korea’s stock market is crashing again.
It crashed, technically recovered, and now it’s crashing again. Not enough people are focusing on this, and I don’t think it’s going to stop.
If you don’t care about Korea, you should. Half of the iShares MSCI South Korea ETF (EWY) is two chipmakers, SK Hynix and Samsung. When Korea sells off, the chip stocks you own here feel it.
I knew before yesterday’s close that the SMH, the fund that tracks the big chip stocks, was going to take a hit. I didn’t know how much. So I put on a butterfly, an options trade that pays the most if the stock lands near one target price by expiration.
I was looking for a 1.5% drop, and the SMH blew straight through 2.5%, all the way through my strikes. I got out for more than double my money.
Why Chip Stocks Are Holding Up The Entire S&P 500
I’m a strong believer that semiconductors are the only thing standing between you and the abyss in the S&Ps.
The sector is up almost 55% this year. Intel is up 154%, AMD is up 163% after being up almost 200% last week, and Micron went from up 250% to up 199%.
If they come in, so goes the marketplace. I don’t care how hard you rotate, you’re not going to rotate your way out of 200% gains coming off.
Nvidia is the product to watch.
It’s down two bucks today, which is like skinning its knee, but what’s $5.5 trillion of market cap amongst friends? If Nvidia slips, there’s no way the S&Ps avoid getting pulled into it.
The Rally That Won’t Save The Chip Stocks
Korea will rally at some point. Even the SMH squeezed right back this morning, which is insane.
But I don’t think Korea is over by a long shot. This is the nail in the coffin for semiconductors.
The SMH is the one to watch, and it’s trading off South Korea. As long as Korea keeps crashing, I’m not buying chip stocks here.
To your success,
Don Kaufman
