July Downturn, Unprecedented Crash Due to Lack of Cyclical Rotation… “Could Re-focus on Samsung Electronics and SK Hynix”

It is said that seminars at brokerage firms often begin with discussions about this market situation. Institutional investors are also in a wait-and-see mode, not rushing into aggressive buying.

Many individual investors who bought stocks at high points in the recent market are now in a difficult situation, unable to move. They are hesitant to cut losses and also to make additional purchases. In contrast, while institutional investors remain inactive, individual investors tend to move quickly to find opportunities in the market.

The stock market moves with a specific angle, and tends to return if it deviates from this angle. This means that even if overshooting (excessive rise) or undershooting (excessive fall) occurs, stock prices eventually tend to revert to the mean. Understanding these wave-like movements is crucial for market prediction.

The market downturn in July showed a very unusual pattern. Typically, when the market declines, corrections occur with alternating rises and falls, but in July, it fell almost in a straight line without any attempts to rise. This meant there was no even attempt to break through moving averages, and investors experienced even greater difficulties.

The 7,500 level is not only a significant past market low but also a technically meaningful zone, coinciding with a 50% retracement of the decline. Therefore, if the market rebounds, it is likely to reach this point.

Nvidia's stock price is currently down from its peak. Therefore, this earnings announcement is not expected to reflect very negative news. If the stock price does not create a bearish candlestick after the earnings announcement, there is sufficient possibility for Nvidia to break through its previous high.

Since August, the domestic stock market has shown a trend of reduced one-sided concentration on specific stocks, unlike in the past. Previously, when large-cap stocks like Samsung Electronics and SK Hynix crashed, other stocks also plummeted in sync, but this phenomenon has significantly eased in August. This suggests an improvement in market rotation.

The recent market rotation shows a qualitatively different aspect compared to the past. It's not just small stocks around large caps moving; buying is spreading to various core sectors such as secondary batteries, bio, fintech, and nuclear power. Semiconductor equipment stocks, in particular, have shown strong upward momentum, recording double-digit gains, indicating that buying pressure is much stronger on the opposite side of Samsung Electronics and SK Hynix.

If only specific leading stocks rise and buying does not spread to other sectors, the overall stability of the market decreases. Other sectors, in addition to the semiconductor sector, must support the market for it to become more solid and maintain a healthy upward trend.

Although the strength of other sectors since mid-August has led to qualitative market improvement, the role of these two stocks remains crucial for the overall upside of the index.

When attempting to buy the dip in a rotational market, focus on the leading stocks that have shown the strongest gains within their respective sectors. When such stocks undergo a correction, check for decreasing trading volume and whether selling pressure from major buyers like institutions or pension funds is not severe. A strategy of selecting the strongest stocks and buying them on dips is effective.

The current market is undergoing rapid rotation, making trading quite difficult. If one chases and buys carelessly, it's common to get trapped at a high point. If one lacks the ability to accurately assess market conditions and react, trading in the current environment can be very challenging.

In the current market, a strategy of targeting dips in the strongest uptrending stocks is effective. Buying dips in downtrending stocks carries a very high risk of loss. Whether money is flowing into the market as a whole is important, and expectations for capital inflow into the US market in the second half of the year are also forming.

The opinion is to focus on intrinsic value based on corporate performance and fundamentals rather than shareholder returns. Given the current profit outlook and undervalued status of the top two semiconductor companies, it is necessary to focus on the companies' growth potential rather than the shareholder return controversy.

It appears that shareholder return policies have come to the forefront for Samsung Electronics and SK Hynix as their stock prices became difficult to raise solely based on performance improvement logic. The fact that stock prices did not rise as expected despite the announcement of enhanced shareholder returns suggests that other structural reasons exist. This is not a natural flow and could be interpreted as an attempt with someone's intention involved.

The core issue is that there are currently 8 million individual shareholders of Samsung Electronics. With the number of individual shareholders significantly increasing from 5.2 million in 2021, there is a structural limit where selling pressure will surge if the stock price rebounds, as investors aim to break even. This is similar to the situation Naver and Kakao experienced in 2021, recalling precedents where many individual investors were stuck at high prices, making it difficult for the stock prices to rise.

Even if the stock price rises, many want to sell and leave the market once they break even. This 'break-even escape' phenomenon has recurred historically, becoming a major obstacle limiting a dynamic rise in stock prices.

If Nvidia experiences a sharp decline and the entire market falls with it, this should be seen as a buying opportunity. Specifically, if Nvidia plunges, buy Nvidia, and if leading stocks like Samsung Electronics or SK Hynix fall sharply, respond by buying in installments. When the market is weak, avoid individual stocks with low market capitalization and focus on leading stocks. Volatile individual stocks are at high risk of being sidelined in a rebound market.