Stocks and Bonds Down, Tolls and Trolls Up

One of the forgotten aspects about the 1987 crash was that the debacle actually started in Asia the evening before, with several Asian markets exceeding the losses in America.

The best example of this phenomenon was Hong Kong, where the Hang Seng Index plummeted 45.8% in a single day, causing the exchange to close entirely for several days. The instructive lesson should have been that "it is all one market," with the global exchanges for the major economies interconnected, and even the mighty American markets not able to remain unperturbed from global chaos. 

While I recognize Black Monday in 1987 is an extreme and rare historical event, the reason why I am raising this issue now is due to the complacency I see with the leverage in South Korea finally beginning to unwind last week and especially today. 

As @zerohedge tweeted earlier this afternoon on X, "As of July 13, 1.2 million Korean leveraged retail accounts triggered margin calls; of these, 320,000–360,000 accounts were fully forcibly liquidated by brokers (some had partial negative balances owed to brokers)."

With South Koreans fixated on AI stocks, especially, the leverage unwind is highly likely to continue to negatively impact the semis and Nasdaq here in America, despite the bulls' counter that this is yet another case of "nothing ever happens."

Of course, we also have escalations with Iran as oil spikes higher and bonds dump on the back of some comments from The Fed's Waller suggesting rate hikes are coming (a sharp reversal from his comments when he was in the running to be the next Fed Chair). 

Overall, there is no substitution for the fact that bears still need to confirm the attractive short setup on the semis (second daily chart, below, of the SMH ETF) with the topping pattern below $565, and also blunt the rotation down to NVDA (first daily chart, below, rejected at 50-day moving average today) from the likes of MU SNDK. 

But with an increasingly threat of higher rates and more margin calls in Asia, the odds seem as strong as ever for the bears to thread the needle during the summer doldrums.