Is The Whole Market Rolling Over...Or Is This Just Rotation?

1.) KOSPI – The world might be wondering whether the action in KOSPI – the South Korean stock market – is a “canary in the coal mine,” suggesting something bad is on the way for the Nasdaq and its tech-related names, or if it is just another correction that generates yet another buying opportunity in semiconductor, tech, and AI-related names. Last night, the KOSPI was down another -4.91% after dropping -7.89% on July 2 and -9.99% on June 23. Since the high set on June 22, the KOSPI is down about -16%. Is that abnormal? Not really. The KOSPI experienced a -15% drop in early June, a -10% drop in mid-May, and a -20% drop from late February to late March. In each of those instances, the KOSPI never broke trend. When I speak of “trend,” I mean a level generated by the rate of change of price, volume, and volatility. On March 31, after that -20% drop, the KOSPI registered an oversold signal. We haven’t seen that oversold condition develop since. Until now. After this most recent drop in KOSPI, it has once again registered as oversold. Why is that important? From the last oversold condition in KOSPI on March 31 to the most recent high (June 22), the KOSPI registered an +80% return. Will that kind of return for KOSPI develop again? I don’t know. But for now, the KOSPI is oversold and trading above trend, so these signals are more bullish than not. What changes that? A close…for more than one day…below trend. Until that happens, this dip is likely buyable.

2.) TECH – Are tech-related names that trade in the S&P 500 in good or bad shape? Are they saying something different from the KOSPI? Maybe. The S&P 500 is trading in a healthy way. It’s experiencing rotation. Lately, the group that is being rotated out of might be tech. Right now, tech breadth has been deteriorating. In fact, 59% of S&P 500 technology stocks are now trading at least 20% below their 252-day highs. Does that matter? To some. That decline would meet the “technical” definition of a bear market. But what’s important to remember is that previous times we’ve seen this scenario, that group found a bottom and went on to rally. Could the oversold condition in KOSPI be that catalyst? Maybe. We’ll see if it can start to rally off its trend level.

3.) S&P 500 BREADTH – Just because one group’s breadth level is bad doesn’t mean the market as a whole is as well. If everything were rolling over together, this chart wouldn’t be making new highs. If breadth starts weakening alongside Technology, that’s a different story. Right now, this still looks like rotation inside a bull market.