Korea ETF EWY Drops 10%

Korea Drops 10% Please click here for an enlarged chart of Ishares Msci South Korea ETF (NYSE: EWY ) .

Note the following: As we have previously shared, prudent investors pay attention to stocks in South Korea because South Korea is like a canary in the coal mine for the AI trade and the semiconductor mania.  The reason is that two of the three biggest memory manufacturers, SK Hynix (HXSCL) and Samsung Electronics Co Ltd (OTC: SSNLF ), are South Korea based.  The third is Micron Technology Inc (NASDAQ: MU ).  Micron is U.S. based.  An easy way to watch the South Korean market is to watch ETF EWY.

The chart shows South Korea ETF EWY crossed slightly above the low band zone 1 (resistance) the day before yesterday, hitting an all time high.

Those who trade only based on traditional technical analysis deemed it to be a breakout and aggressively bought Korean stocks.

The chart shows last night EWY fell about 10%.

Now, it is clear that the breakout was false.

This illustrates why prudent investors should not use traditional technical analysis alone.

Moreover, traditional technical analysis no longer works as well as it used to.

The chart shows zone 2 (support).

Prudent investors should carefully watch what happens to EWY relative to zone 1 and zone 2, especially after Micron earnings.

Micron will report earnings tomorrow after the close.

As full disclosure, we are long MU from an average of $21.77.

The chart shows our buy signal for EWY.

We are long South Korea ETF (EWY) from an average of $48.60 from the April 9, 2025 signal.

The proximate cause of the sell off in South Korean stocks was an unconfirmed local report that SK Hynix is shifting DRAM capacity from high bandwidth memory (HBM) used in AI data centers in favor of general purpose DRAM.

If the report is correct, why would SK Hynix make such a move? In our analysis, HBM has significantly higher profit margins.

The only reason to make the reported move would be if the demand for HBM is slowing.

Investors should take the report from Korea with a grain of salt.

Our analysis has been that the demand for AI semiconductors is going to continue throughout 2026 and will slow in 2027 to 2028.

Prudent investors need to keep in mind that markets look ahead 6 – 18 months.

The drop in South Korean stocks is causing a selloff in semiconductor stocks in the U.S. in the early trade.   The momo crowd’s favorite ETF DRAM that represents semiconductor memory is down 12.6%, and the momo crowd’s favorite leveraged semiconductor ETF SOXL is down 19.7% as of this writing in the premarket.

We have been sharing with you that the risks of a pullback in the stock market are rising.

The key question for prudent investors is how to participate in the upside from three manias and simultaneously protect their portfolios.

The answer is dynamic hedging.

In addition to paying attention to semiconductors, prudent investors should get ahead of the curve and pay attention to quarter end rebalancing.

In our analysis, institutions will likely be selling over $100B in equities and shifting the money to bonds.

Investors may generate more alpha by identifying significant changes early.

Prudent investors should pay attention to a new change that is just beginning to happen.

Until now, the guiding principle in large corporations was token max as they wanted to maximize the use of AI.

Now, the trend is shifting to token min.

The reason is the rising costs of tokens.

Prudent inventors should also pay attention to another change along with the shift from token max to token min.

The models from Alphabet Inc Class A (NASDAQ: GOOGL ), Anthropic, and OpenAI are very expensive.

Corporations are beginning to look at cheaper open source models for some tasks.

Further, prudent investors should note there is a flood of cheaper open source models coming from China.

In our preliminary analysis, for certain tasks the cost of using the top U.S. models is eight times the cost of cheap Chinese models.