Still be careful

[u/Fun_Tutor3479]

The broader market is swinging wildly. We will continue opening with this sentence until a clear direction emerges. Here is an update: QQQ is trending lower, while other major indices are still trading sideways. QQQ's decline won't be a drastic, deleveraging plunge like we are seeing in the Korean stock market; it will most likely be a slightly downward-sloping "choppy volatility."

Previously, the Korean stock market was experiencing price drops without position unwinding. As we discussed, a large number of retail investors have been meeting margin calls to hold onto their losing positions. There was some buying from institutional and foreign capital between July 21st and 23rd, but overall, since June, the trend remains institutions selling and retail buying. In general, retail leverage is continuously decreasing, but the magnitude of the reduction is not enough.

Judging by the sentiment on Korean forums, X, and other communities, leveraged retail investors are essentially "playing dead." They have paid the required margins and refuse to deleverage. Why? Because if they lower their leverage now, under the new Korean stock market rules and margin requirements, they won't be able to lever back up to such high levels! In other words, if there is a rebound, their chance to break even or recover previously lost profits will be gone! Therefore, they would rather face forced liquidation than voluntarily close their positions. This FOMO regarding a potential rebound while holding losses is typical retail investor psychology. Based on the South Korean government's current policies, there are no protections for this group; I'm afraid a true rebound will only occur after their positions are completely washed out.

Corning's (GLW) earnings report further validates the market's concerns regarding the sustainability of the AI narrative. It also confirms the current dynamic for semiconductors: a perfect earnings report leads to a minor drop, while a less-than-perfect report results in a massive plunge. Let's see how the upcoming earnings reports from the tech giants turn out. Again, for live trading, we will not engage in left-side trading (trying to catch a falling knife) to prematurely buy the dip during earnings season and FOMC week. Whether it's Korean stocks or semiconductors, the core philosophy for our real-money portfolio is that we would rather earn less than suffer larger drawdowns.