Author: qinbafrank

Having endured a tense weekend, how should the market be viewed this week? Last Friday evening, detailed factors influencing the stock market's performance in the latter half of last week were outlined. The earliest warning of risk came from the space sector on Wednesday evening. (Related reading: US Stock Market Pullback Warning: What is the True Risk of AI? A look into the new trends in software stocks, optical interconnects, SpaceX, and Bitcoin funding.)

The core logic of this adjustment:

AI/semiconductor short-term growth was too large, market FOMO (fear of missing out) was too strong, and the trading structure was overly crowded; such parabolic rises are not sustainable. Subsequently, the SpaceX giant IPO roadshow and subscription harvesting, natural risk aversion before CPI/PPI/FOMC, as well as strong employment data strengthening concerns of "high rates for longer or even renewed rate hikes," ultimately triggered a concentrated deleveraging in popular tech stocks. Of course, this is a reiteration of old points, but the key is how to view the follow-up.

1. A review of several adjustments over the past six months.

There was a similar tech stock crash last December. At that time, Oracle triggered concerns over AI ROI (return on investment) and capital expenditures, followed by Broadcom's disappointing earnings leading to further market declines, until Micron's strong performance and relatively mild inflation data helped restore sentiment. The common point in both instances was disturbances in interest rate expectations, while the difference was: at the end of last year and the beginning of this year, the market was more concerned about the numerator of AI capex returns, whereas this time there wasn't a consensus on "the AI logic has collapsed"; the market is more concerned about the denominator—interest rates, inflation, the Fed, geopolitics, and liquidity.

The storage sector is one of the strongest lines in this round of AI trading, with the largest gains, highest prosperity, and strongest earnings elasticity, making it the most susceptible to concentrated profit-taking during overcrowded trading. For example, Micron fell from a high of 1089.29 on June 3 to a close of 864.01 last Friday, a pullback of about 20.7%; if counted from the intraday low of 850.18, the maximum pullback is about 22.0%. This has exceeded the approximately 20% pullback during the mid-May round, but has not yet reached the more extreme panic levels of the March war period.

KORU, as a 3x leveraged ETF in the Korean market, offers a rough observation of the risk appetite in Korean tech/storage trading but cannot be directly equated to the Korean index itself. KORU fell from a high of 1279.70 on June 1 to a close of 610.01 on June 5, a pullback of about 52.3%; if calculated from the intraday low of 599, the pullback is about 53.2%.

In terms of space, this pullback has already exceeded the mid-May adjustment;

In terms of time, this round has been adjusting for four consecutive trading days, nearing the short-term major decline windows of the past.

Therefore, a relatively reasonable judgment is: under the premise that the AI fundamentals have not been debunked, the short-term main decline wave may have already completed a significant portion; the probability of continued violent selling decreases.

Thus, this week may not necessarily continue to crash, but the probability of a direct V-shaped recovery is low; it is more likely to experience sideways fluctuations or a gradual decline with reduced volume; however, as long as U.S. Treasury yields do not fall, and CPI/FOMC have not materialized, the market will likely remain highly volatile, defensive, and waiting for confirmation and turning points.

2. Looking at several significant events from the weekend until today.

1) There are still frictions between Israel and Lebanon, with Iranian missiles and drones beginning to strike Israel, while Trump is pressuring Netanyahu not to retaliate, continuing to maintain the U.S.-Iran agreement line. This line will disrupt oil prices and remind the market of inflationary pressures.

However, there are currently no signs of escalating to a state of complete uncontrollability.

Watching an interview Trump conducted last night, he made great efforts to ensure that the U.S.-Iran war would not escalate.

2) Nvidia and SK are expected to announce a cooperation plan on Monday. Jensen Huang's statement is direct: there are shortages in memory, wafers, advanced packaging, and silicon photonics, and these shortages may last for several years. This statement reconnects several lines previously speculated in the market.

In the current market context, it will provide some support but should be difficult to immediately drive a reversal. Today, watch the market performance; can the core targets stabilize after a low opening? Will companies with orders, customers, and industry positions get funds back first?

If core companies stabilize while related stocks fluctuate, that indicates differentiation.

If core companies cannot hold, the sustainability of such a rebound will be poor.

3. Waiting for macro feedback for the first signal.

Since early April, the significant bull market in these two months was initially driven by the cessation of hostilities in Iran, followed by computing power shortages, and then the acceleration of AI commercialization; these three factors unfolded sequentially from early April to mid-April, driving a wave of market movements.

April was about "macroeconomic risks alleviated → AI industry logic being amplified again";

Now it is "AI industrial logic has not broken → but macro denominators are suppressing valuations → therefore, from a personal perspective, we must wait for macro conditions to stop the bleeding."

Thus, for a true reversal to occur, it is highly likely that we need to wait for macro conditions to provide a "bleeding stop signal." It doesn't have to be as significant a macro benefit as "Iran is heating up" in early April; more realistically, the market needs to see that the denominator is no longer worsening.

Why is there a need for a macro signal this time?

Because the main contradiction in this drop is not that "the AI logic has collapsed," but rather that interest rates, inflation, vague meetings, geopolitics, massive IPOs draining liquidity, and the market's excessive enthusiasm and crowding are all impacting valuations and leading to deleveraging.

In other words, the market is not asking: "Is there still demand for AI?"

Rather, it is asking:

“If interest rates continue to rise, can AI stocks sustain such high valuations?”

Therefore, in this reversal, the priority is not to look at industry stories first but to check whether macro pressures have ceased to rise.

The order will likely be similar: first, macro conditions need to stop the bleeding; at least CPI cannot explode, U.S. Treasury yields cannot continue to surge, post-SpaceX IPO will there be a release of some liquidity, and the FOMC cannot further adopt a hawkish stance. Only after the pressure on the denominator eases will the market return to the numerator of AI, reassessing the shortage of computing power, rising storage prices, and the acceleration of AI capex and commercialization.

For a reversal to occur, first look for macro signals; it is not necessary for macro conditions to improve comprehensively, just not to worsen further. Once macro stops the bleeding, the AI industrial logic will quickly reconnect. Therefore, as discussed last Friday night, it is difficult to completely reverse in the short term, and patience is needed.

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