Wonder Boy Blowup Sparks Massive Semiconductor Rally, Korea Up 18%; Amazon Helps, Apple Disappoints

Semiconductor Rally 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 a massive rally in semiconductors yesterday.

In yesterday’s Morning Capsule, we wrote: The chart shows selling in SOXL yesterday was on heavy volume.

The reason for the heavy volume was that many momo crowd accounts were hit with margin calls and were forcibly liquidated.

The heavy volume shown on the chart the day before yesterday resulted in exhaustion of selling.

The massive rally yesterday shown on the chart was the result of the overhang of forced liquidations of momo crowd accounts lifted.

Yesterday, we wrote: RSI on the chart shows SOXL is moving out of the oversold zone.

This sets SOXL up for a potential bounce unless there are more margin calls and more momo accounts are liquidated.

The last time a similar rally was seen was in 2001 after the internet bubble crashed.

Here is the key question for investors: Will this semiconductor rally be sustained or peter out? The answer will come down to if momo accounts that have been on the verge of liquidation have already been liquidated or if more liquidations are still ahead.

In our analysis, the big rally, at a minimum, has postponed more liquidations.

The chart shows that there is more aggressive buying in semiconductors this morning.

A high profile hedge fund in which all publicly traded securities were sold to Citadel, essentially a liquidation, was ironically named Situational Awareness — the fund does not appear to have awareness of the risk it was taking by buying momentum AI stocks on 4:1 leverage.

The fund was run by 25 year old Leopold Aschenbrenner who had amassed $45B of assets.

When the momentum turned, Situational Awareness lost 67% in July.

Aschenbrenner had no prior professional investing experience before starting the fund two years ago.

In addition to the U.S., a large number of momo accounts were forcibly liquidated in South Korea.

To deal with the stock market drop, the South Korean government announced a variety of measures including their sovereign wealth fund injecting $13.9B in AI.

As the overhang of forced liquidations lifted, the Kopsi index in South Korea ran up 18% for the day.

Samsung Electronics Co Ltd (OTCPK:SSNLF) was up 27% for the day and SK Hynix Inc — ADR (NASDAQ: SKHY ) jumped 30%.

It was the biggest one day jump in SK Hynix stock since the company went public in the 1990’s.

Amazon.com, Inc. (NASDAQ: AMZN ) jumped after earnings.

Many less knowledgeable retail investors did not realize that the reported income included investment gains and acted on the headline.

Many Wall Street algos also appear to have acted on the headline.

Here are the details: Amazon reported EPS of $5.75 vs. $1.82 consensus.

Amazon reported revenue of $200.6B vs. $196.43B consensus.

AWS sales were $42.23B vs. $30.87B last year.

This was the fastest growth for AWS in 18 quarters.

AWS is the computing arm of Amazon.

Amazon will spend $220B on capex.

The stock market got excited about Amazon when Amazon said that AWS could become a $1T business.

This $1T forecast brought more buying into semiconductors after hours.

Apple Inc (NASDAQ: AAPL ) had run up going into earnings for two reasons: Whisper numbers continued to move up.

The narrative changed from Apple being a laggard in AI to a good thing that Apple was not spending capex on AI.