KOSPI Rebounds as Foreign Buying Returns; Watch Rotations and Be Wary of Short-Term Surges

The market appears to be laying the groundwork for a technical rebound, showing a gradual recovery after the large shock.

Yesterday the KOSPI turned bullish for the first time in seven trading sessions, and today SK Hynix surged, extending the gains. Samsung Electronics moved first yesterday, showing it is leading the market's rebound. This indicates that overall market buying sentiment is recovering.

Yesterday Samsung Electronics drove the index, and today SK Hynix surged and pushed it up. These moves are forming a double-bottom chart pattern, raising the likelihood of a technical rebound.

This is seen as adding momentum to foreign buying and accelerating the market's rise.

This suggests possible fatigue from the short-term surge and the emergence of profit-taking selling.

Currently, supply and demand tends to concentrate in specific stocks. Team Leader Hwang Yu-hyun pointed out that for a healthy rise in the overall market, energy needs to be spread across many stocks and sectors. The analysis is that sustained gains require the market's overall strength to strengthen as buying spreads out.

Also, reverse trading (buying on margin's forced-sale side) jumped 4% after the market surge. Team Leader Hwang Yu-hyun explained that when the market surges, individual investors chase in recklessly, hoping to recover losses quickly. These are indicators of market liquidity and individual investors' tendency to chase purchases.

This suggests a supply-demand imbalance between the large-cap-driven KOSPI and the small- and mid-cap-driven KOSDAQ. The analysis is that as market energy concentrates in some large caps, it could hinder broad, even gains across the market.

There are two main reasons foreigners are buying Samsung Electronics and SK Hynix. First, the sharp drop has created a price advantage. Second, these stocks previously rose on EPS (earnings per share) rather than multiple expansion, so even if they fall, downside is limited. Institutional moves such as the so-called stock-price-suppression prevention law (the 0.8x rule) are not catalysts that pull prices up, but they act as factors supporting the downside. The fact that foreign ownership of Samsung Electronics and SK Hynix is at a record low is also widely seen as a bottom signal.

Team Leader Hwang Yu-hyun assessed that SK Hynix still has roughly 10% additional upside. Samsung Electronics has risen strongly since yesterday and has nearly completed its rebound, but he analyzed that some further upside of a few percent remains open. This suggests both stocks still have short-term upside potential.

The market is currently marked by very fast rotation, with several rotations appearing even intraday, making it hard to respond. Team Leader Hwang Yu-hyun advised that when investing in individual stocks, it is appropriate to consider a first round of profit-taking around the 30% level. He added that if responding to fast rotation is difficult, one should plan strategies with the possibility of the KOSPI rising further above the 50-day moving average toward 7,300 points, which can be viewed as a partial rebound target.

Unlike May and June, when it was hard to make returns outside Samsung Electronics and SK Hynix, he analyzed that with careful stock selection, enough volatility is appearing to recoup losses in the July and August markets and the August-September market leading up to Chuseok.

In robotics as well, stocks like Robotis are quickly forming upward alignments. This shows market attention is shifting to specific sectors and stocks.

Such stocks should be secured in advance and bought early, while stocks that have already risen sharply should be avoided to prevent chasing. Team Leader Hwang Yu-hyun advised that the best strategy is to enter when a quietly rising stock like Cosmax pulls back. This is a cautious approach aiming for both low-price buying and growth potential.

He added that a somewhat sluggish flow could appear during this process.

Stocks hitting new 5-day highs surged to as many as 80. In July there were only 10 to 15, mostly limited to small caps, so this is a major change. Stocks like DB HiTek are meaningfully turning their prices around, and heavily depressed stocks like Samma Capacitor are just entering the early stage of an upswing or a breakout. This shows market energy is spreading across a wide range of stocks, and a meaningful change appears to be beginning.

Team Leader Hwang Yu-hyun said that just two weeks ago many investors were thinking the stock market was over, but now new opportunities are emerging. Recalling his experience after the October 2018 crash, when two months later his view changed to 'you can still invest in stocks through individual names,' he said he felt similar emotions this time. He assessed that as long as there are people, opportunities in stocks will return, and that this one came sooner than expected.

The volatility index has been plunging for several days, a positive signal for the market. Because human nature dislikes anxiety, the decline in the volatility index means market anxiety is easing and investor sentiment is stabilizing.

When stock prices rise, investors easily become unconditional optimists, but Team Leader Hwang Yu-hyun advised that this is exactly when one should look at the market even more coldly. He said investors must check whether the bad news that existed during the decline is still there, and since people tend to forget bad news easily, a strategy aiming for low-price buying and rotation is needed rather than chasing purchases.

Team Leader Hwang Yu-hyun suggested three criteria to consider when looking for promising stocks. First, is it forming an upward alignment? Second, does it carry earnings or positive catalysts? Third, is it part of a cluster where the whole sector moves rather than an individual stock, i.e., in large sectors like shipbuilding, securities, and construction where money can flow in via ETFs or baskets? He added that stocks like GS Engineering & Construction, Samsung E&A, and DL E&C, which have formed upward alignments without large gains yet, are worth watching.