Semiconductor Leading Stocks Continue… Conditions for New Leading Stocks

The stock market exhibits a psychological phenomenon called the round number effect, where investors tend to sell when a certain index is reached, driven by the desire to break even.

The desire of individual investors who were caught at the 7,000 mark during the index decline last June is now a major factor hindering the index's breakthrough and stabilization. Their selling volume was pointed out as a factor consuming the market's strength.

A simple breakthrough may be a short-term phenomenon, but true stabilization is considered when it is maintained for one consecutive week based on the closing price. This allows for judging the market's robust upward trend.

The won-dollar exchange rate falling by about 17-18 won in one day to close at 1,358 won has a positive impact on foreign investor supply and demand. A stronger won allows foreign investors to expect exchange rate gains when buying Korean stocks, thus contributing to index defense.

Important market variables are scheduled for late September, including the U.S.-China summit, Samsung Electronics' ex-dividend date, and Micron's earnings announcement. These variables could influence market direction and require close observation.

Subsequently, in October, the third-quarter earnings season and the determination of Samsung Electronics' shareholder return direction will take place; in November, the end of the U.S. midterm elections and SK Hynix's share buyback will resolve market uncertainties. In December, market interest in year-end dividends and shareholder return policies is expected to heighten.

CEO Jo points out that the current situation, where a few large-cap stocks lead the index, is far from a broad market expansion. On September 21, KOSPI rose 1.6% to surpass the 7,000 mark, but the actual number of rising stocks was 310, while falling stocks numbered 552.

This phenomenon, where one or two large-cap stocks drive the index, is far from a broad market-wide increase. Such a situation is likely a 'fake rally,' and investors should not be misled by index numbers alone but grasp the market's fundamental movements.

When the number of rising stocks significantly exceeds the number of falling stocks on days the index rises, and this phenomenon continues for several days, not just one, the breadth of the rise expands. This is one of the important signals of a rally.

The second indicator is an increase in trading volume, which confirms whether money is flowing into the market. Whether moving averages align in a direct array is also an important technical analysis indicator for judging an upward trend.

It is also crucial to confirm whether foreign and institutional investors are jointly buying (a 'double-pull' buy) and if investor sentiment is improving with KOSPI and KOSDAQ rising together. A true market rally can be expected when these five signals appear simultaneously.

A full-fledged upward trend begins when 3 or more indicators are sustained for over a week. Until then, gradual allocation through staggered purchases is necessary. Only 1-2 of the five market indicators mentioned earlier are currently met.

CEO Jo Jin-pyo advised that a strong upward trend can be considered to have started when 3 or more of the five indicators remain active for over a week. Until this criterion is met, a strategy of staggered purchases, gradually increasing investment allocation, is effective.

When selecting leading stocks, one must check the key keywords of the era and the company's earnings trajectory. First, leading stocks are born in corrections, characterized by falling less or recovering first during downturns.

Second, corporate earnings forecasts are continuously revised upwards. Third, earnings grow faster than stock prices, always appearing expensive but tending to shift to an undervalued state. Fourth, they are closely related to the era's key keywords (e.g., AI, electric vehicles).

Finally, one must check the company's earnings trajectory rather than just stock price fluctuations. Leading stocks are characterized by sustained fundamental improvement of the company, beyond merely rising stock prices.

"The industries are all different, but they all have five identical fingerprints. The first fingerprint: leading stocks are actually born during corrections. This is the most important."

These investors tend not to sell during corrections but rather buy more.

Investors can identify these patterns by checking monthly net buying entities through securities firm apps. Stocks that meet at least four of the aforementioned five leading stock selection criteria are considered true leading stock candidates.

The signal for the end of a leading stock appears when earnings forecasts start to decline, but the stock price continues to rise. This indicates a divergence between the company's fundamentals and its stock price.

Ironically, it is also often pointed out that when everyone is talking only about a particular stock, it is usually at its tail end. For actual profit realization, selling timing is as crucial as buying.

The semiconductor sector is highly likely to retain its leading role until the end of this year. This is because earnings forecasts are continuously being revised upwards.

Leading stocks end when their earnings outlook falters, but such a signal has not yet appeared for semiconductors. In Yeouido, semiconductors are cited as the primary driver for upward revision of KOSPI earnings forecasts in the second half.

If interest rates fall, the valuation of future earnings increases, and semiconductors, materials, parts, and equipment (Hanmi Semiconductor, ISC, EO Technics), and biotech (Samsung Biologics, Alteogen) could emerge as co-stars.

In a prolonged high-interest rate environment, financial stocks with increasing earnings (KB Financial, Shinhan Financial Group, Hana Financial Group) could become leading actors; if Middle East tensions persist, defense (Hanwha Aerospace, Hyundai Rotem) and shipbuilding (HD Korea Shipbuilding & Offshore Engineering, Hanwha Ocean) sectors garner attention.

When investment in the US materializes, nuclear power (Doosan Enerbility, Hyundai E&C) and power equipment (Hyosung Heavy Industries, LS ELECTRIC) related stocks could become major investment targets.

The phenomenon of individual investors prematurely selling leading stocks is called the 'Disposition Effect' in psychology. People tend to rush to lock in profits, fearing to lose them, while also tending to hold on to losses without acknowledging them.

The core of leading stock investment lies not in the skill of buying stocks but in the skill of selling and holding on until the end. Understanding and overcoming these psychological habits is essential for long-term profit realization.

It is advisable to increase allocation in leading stocks by adding more when they surpass previous highs, thereby confirming the validity of one's judgment. This principle means adding money to correct judgments, not to incorrect ones.

Rather than averaging down when a stock falls, it is recommended to allocate more to the winning side. The core strategy is to increase allocation in a proven trend during an ascent, rather than indiscriminately chasing a rising price.

CEO Jo Jin-pyo mentions creating 'free stocks' after recovering principal as the first rule. He recommends operating long-term accounts (held until earnings outlook deteriorates) and short-term accounts (for volatility response) with a 60:40 ratio. For example, when an investment doubles, selling only 50% to recover the principal and holding the remaining half long-term without psychological burden.

Along with this, a 'dual account strategy' is suggested, dividing assets into a long-term account (held until the earnings outlook falters) and a short-term account (for volatility response). It utilizes the principle of operating long-term and short-term accounts with a 60:40 ratio.

This strategy focuses on changes in the company's intrinsic value.

Selling signals mentioned include reduced AI investment by big tech and declining memory prices. It is wise to gradually liquidate when multiple signals converge, such as a deepening divergence between earnings forecasts and stock prices, or a breach of the moving average.

Leading stocks also experience several significant corrections of 20-30% during their ascent. The Nvidia case also shows that fluctuations in leading stocks are a common phenomenon.

For holdings in a long-term account, it is necessary to check only whether the fundamental reason for the investment has been compromised, without being swayed by short-term market fluctuations.

The goal is not to completely eliminate psychological regret that arises during investing, but to 'halve' it. The first method proposed for this is the 'half-half principle.' This involves buying or selling only half, rather than the full amount, when uncertain.

Systematic approaches, such as setting up advance orders and staggered orders during the holiday period to prevent emotional responses, are also important. This reduces the room for investor psychology to intervene, aiding rational decisions.

It is advisable to observe for the first hour of the first trading day immediately after the holiday, as price exaggeration is likely. It is recommended to avoid rash investments during periods of heightened emotion.

It's important to approach the first three days immediately after the holiday with the understanding that the stock market will be volatile. There is a possibility of a temporary index decline due to Samsung Electronics' ex-dividend date on September 29, and Micron's earnings announcement on September 30 could cause volatility in the semiconductor sector.

Investors should be wary of making reckless investments to compensate for past decisions, driven by an obsession with regret. It is crucial to identify and prepare for these key dates in advance.