Parabolic Moves Never End Well — The KOSPI Bubble Just Found Out
Always ends in tears
Parabolic moves always end in tears. KOSPI is the latest casualty. On Friday we pointed out the KOSPI bubble having reached bubble levels and we reminded our readers that Parabolic moves rarely unwind politely.
Fast forward to today and the KOSPI is down some 20% since the Friday high. 50 day comes in around the 5k area, while the longer term trend and the 100 day come in lower.
Source: LSEG Workspace
For the record books
KOSPI volatility has flipped from spot up, vol up to crash down, vol up. The KOSPI “VIX” surged to 80 overnight, implying roughly 5% daily moves ahead. That is extreme for an index, even after the overnight collapse. In just three sessions the market has gone from upside panic to pure downside panic.
Source: LSEG Workspace
When VIX looks poor
You know things are extreme when a VIX at 23 looks tiny in comparison. KOSPI “VIX” vs the VIX.
Source: LSEG Workspace
Suddenly oversold
KOSPI has suddenly hit its most oversold levels since April last year — this kind of index-level price action is highly unusual.
Source: LSEG Workspace
KOSPI and bros
As we have been pointing out over the past months, the Korea bros shifted from chasing BTC to chasing KOSPI and related hot names such as SK Hynix. The almost perfect inverse relationship between KOSPI and BTC has continued.
Don’t be surprised by the recent pop higher in BTC — it is simply doing what it is supposed to do. Chart 1 shows KOSPI vs BTC (inverse), chart 2 SK Hynix vs BTC (inv).
Source: LSEG Workspace
Source: LSEG Workspace
When risk unwinds
The latest volatility in the more sensitive parts of the market is simply deflating some of the excess built up in the suddenly popular risk-on trades. KOSPI vs MXN (inverse) tells the story well.
Source: LSEG Workspace
What now?
Silver was probably the most chased asset before it collapsed. Since then, silver has been oscillating in a volatile range. It wouldn’t be surprising to see the Korea bubble develop in a similar way.
Source: LSEG Workspace
Poster child cracks
SK Hynix, the poster child of the Asian AI chase, has crashed over the past few days. The stock has now closed below the short-term trend and below the 21-day moving average for the first time since the squeeze began. The 50-day still sits lower, not to mention the 100-day.
Source: LSEG Workspace
Zoom out
Performance over the past year: SK Hynix +346%, Samsung +215%, NVDA +44%. Still plenty of juicy profits in hot Korean names unless you chased it last few weeks. What will investors do?
Source: LSEG Workspace
