China Developments Spark KOSPI Crash, US Semi Stocks Follow As Fed Decision Looms

U.S.

Semiconductors Following South Korea Please click here for an enlarged chart of Direxion Daily Semiconductor Bull 3X ETF (NYSE: SOXL ).

Note the following: Semiconductors are the leading sector that drove the stock market higher.

SOXL is the momo crowd’s favorite semiconductor ETF.

The chart shows that SOXL is now making lower lows in the early trade.

This is a negative.

The chart shows that the rally from the July 17 low failed at the low band of zone 2 (resistance).

This is a negative.

RSI on the chart shows that semiconductors are very oversold.

Oversold conditions often lead to a bounce.

We have been sharing with you that lately semiconductors in the U.S. have been following the South Korean market.

Today is no different.

Overnight, South Korea’s Kospi index was down 10%.

Semiconductors in the U.S. are falling in the early trade, as shown on the chart.

Investors need to remember that until recently, the South Korean stock market followed the U.S. stock market.

We have been sharing with you for a while that competition was going to come from China in memory and the stock market was oblivious.

Overnight, the South Korean stock market fell because the market woke up to there being competition from China after being oblivious for a long time.

Yesterday we shared with you that Chinese memory maker CXMT rose 466% on its first day after IPO.

The success of the CXMT IPO has turned out to be the trigger to wake up the market to the threat of competition from China.

We have long shared with you that an essential technology for the production of modern sophisticated AI chips is extreme ultraviolet lithography.

We have been sharing with you that a Dutch company ASML Holding NV (NASDAQ: ASML ) holds a near monopoly, but Chinese companies were attempting to produce their own machines.

Now, the stock market is waking up to the fact that China will produce its own machines.

In our analysis, at least for today, the stock market is over estimating the China threat on extreme ultraviolet lithography in the near term.

In our analysis, in the near term, Chinese machines are not likely to be sophisticated enough to produce high end chips.

The stock market is doing what it often does – stay oblivious to a new development for a long time and then all of a sudden wakes up and overreact.

The reason for this phenomenon is the dominance of the momo crowd driven by momo gurus.

The momo crowd does not do any deep analysis and is simply driven by greed and fear.

Momo gurus’ real job is to run up the stocks in the guise of analysis, so they never share any negative news even when they are aware of it.

After the momo crowd, the technical analysis crowd is the most dominant in the stock market.

The fact is many fundamental analysts are closet chartists.

The technical analysis crowd does not understand that traditional technical analysis no longer works well.

Please click here to see the reasons.

Also adding to concern is circular financing in AI.

We have been warning about circular financing for a couple of years and sharing similarities to vendor financing before the 2000 crash.

To be successful in the next phase of AI, investors need to change how they think about AI.

Knowing how to think correctly will help investors extract more out of the markets.