As SK Hynix lands in the U.S., here's why investors should be wary of the chip sector's 'bubblelike' volatility

By Jamie Chisholm

Traders can only hope South Korea-style turbulence won't be imported to Wall Street

SK Hynix will raise $26.5 billion in its U.S. offering.

One of the world's hottest stocks comes to Wall Street today. Memory-chip behemoth SK Hynix, which has seen its shares surge 640% on the Seoul exchange in just the last 12 months, is listing American depositary receipts on the Nasdaq.

U.S. tech investors may welcome the chance to secure more direct exposure to South Korea's second-biggest company, ranking behind only Samsung Electronics. However, they should be hoping SK Hynix doesn't import some of that famous Seoul market volatility, given the danger highlighted by BTIG technical guru Jonathan Krinsky.

Back to Krinsky shortly, but first a note on just how turbulent the South Korean market has been. With Samsung (KR:005930) and SK Hynix (KR:000660) of late making up more than 50% of the Kospi Composite Index's KR:180721 aggregate market capitalization, sentiment shifts around the semiconductor sector have caused broader market tremors redolent of a malfunctioning cardiogram.

The Kospi Volatility index, which like the Cboe's VIX VIX measures implied market volatility, surged to 98 toward the end of June. In comparison, the VIX was trading just below 18.

That record spread of 80 points between the volatility gauges was all the more remarkable because it came at a time when the Kospi was only just shy of its peak, notes Chris Watling, chief market strategist at Longview Economics.

A pickup in volatility is typically associated with falling risk assets, says Watling, in a bulletin published Thursday. "Occasionally, though, volatility rises as risk assets rise. That is, a rising market with rising risk. That is a clear indication of bubble-like behavior."

Indeed, the previous two major spikes in Korean volatility have been associated with the major selloffs during COVID and the global financial crisis, Watling observes.

BTIG's Krinsky is similarly wary, noting that, while the performance of the U.S. semiconductor sector has been spectacular, so too has its volatility. "Extreme turbulence has become commonplace for the sector, but not something that is typically a bullish sign," he says in a note released Thursday. SOX constituents like Micron Technology (MU) and Intel (INTC) have seen very choppy trading of late.

Crunching the numbers on the PHLX Semiconductor Index SOX, Krinsky observes it has moved 3% up or down 15 times in just the last 30 trading days, a statistic last seen in 2000.

The SOX on Thursday closed above its 50- and 200-day moving averages, but below its 20-day moving average, only the 19th time it has done that, Krinsky calculates. Describing it as a "high-volatility bounce after a drawdown within a primary uptrend," he says that, in the past, this dynamic has delivered generally poor returns for the SOX in the following weeks.

"While this was too early [as] a signal in '99, it had ominous outcomes in '95, '97, '00, '20, and '24 preceding -17% or worse drawdowns as well as June '07, one month before the final pre-great financial crisis high," he says.

Source: BTIG

The markets

U.S. stock-indices SPX DJIA COMP are mixed at the opening bell as Treasury yields BX:TMUBMUSD10Y dip. The dollar index DXY is little changed, as oil futures (CL.1) rise and gold futures (GC00) trade around $4,110 an ounce.

 
Key asset performance                                                Last       5d      1m       YTD     1y 
S&P 500                                                              7482.71    -0.01%  2.97%    9.31%   19.47% 
Nasdaq Composite                                                     25,870.65  -0.65%  2.79%    11.31%  25.52% 
10-year Treasury                                                     4.579      8.90    10.70    40.70   22.80 
Gold                                                                 4117.4     -0.44%  -2.75%   -4.96%  23.53% 
Oil                                                                  73.59      7.49%   -14.85%  28.18%  10.05% 
Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

Apollo Global Management (APO) has reached an agreement in principle to purchase easyJet (UK:EZJ) in a GBP5.7 billion ($7.7 billion) deal, trumping a bid for the U.K.-listed low-cost airline by private-credit group Castlelake .

The International Energy Agency said global oil supplies are improving but renewed fighting between the U.S. and Iran "highlight the risks of not reaching a lasting peace agreement, which is a must for the normalization in oil markets."

Japan's yen (USDJPY) and stocks JP:NIK rallied after Finance Minister Satsuki Katayama said pension funds and the public should shift more assets into domestic markets.

Delta Air Lines shares (DAL) have been volatile in premarket action after the company's second-quarter earnings beat analysts' forecasts and its outlook was also better than foreseen.

Netflix is exploring live TV and bundles as it struggles to keep viewers hooked.

The chart

Just 20 stocks account for 95% of the forecast growth in second-quarter earnings, according to Ryan Grabinski, strategist at institutional brokerage Strategas. "Micron and Nvidia are expected to be the largest contributors to second-quarter net income growth, accounting for 21.1% and 19.6%, respectively. Together, they'll drive more than 40% of total growth," he says. Big banks unofficially kick off the Q2 earnings season next week.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

 
Ticker  Security name 
NVDA    Nvidia 
MU      Micron Technology 
SPCX    SpaceX 
TSLA    Tesla 
AMZN    Amazon 
AMD     Advanced Micro devices 
META    Meta Platforms 
TSM     Taiwan Semiconductor Manufacturing 
AAPL    Apple 
MSFT    Microsoft 

It's boiling outside ... so, time for a Santa convention.

-Jamie Chisholm

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(END) Dow Jones Newswires

07-10-26 0930ET