Pre Market Thoughts - 24 Jul 26

Yields pretty much unchanged from yesterday. In Asia trading, markets were broadly weaker following a weak close into the NY session. $KOSPI is down 5.7% while $NKY is down 2.7%. Memory broadly is weaker with $0660 down 7% and $285A down 10%. This has dragged down pre market trading in $MU and $SNDK - with both down about 2% at this point.
Before i touch on the Asia performance - its important to look at the US session yesterday. We had an average of -5% on the Mags7/Bag7 (see the heatmaps on while semis were firm. The market is anticipating that $GOOG is not the first mag7 to increase its capex cadence. At this point, the market is looking for some verification that the capex spend will lead to durable revenue. For all the noise around buybacks - remember. In corporate finance 101 - a company only does buybacks if it does NOT have a better use for its cash. The mag7s finally have a usecase for the vast horde of their cash. The market is broadly right in the long run, but in the short run they can be myopic. Especially when the regime and the environment changes. For next week's reporting, we have the rest on the earnings tightrope - I would expect to see further increases in capex cadence like $GOOG and also some validation of cloud revenues.
On semis, while the reaction was firm initially, you could tell that market participants are scarred and were not bidding semis as per before. Why are we in such an environment? First of all, $CL is rising and yields are higher. These are durable fears for the market and in my opinion creates a wall of worry for markets to go over.
Finally on correlations - we are finally seeing the ending phase of this correlation blanketing. For the past month, SPX moves have been muted via different sectors covering up for each other as the money rotates around. This looks to be coming to an end. Both put and call flies on indexes offer decent value. The 7500/7350/7200 24 Jul P/Fly i recommended last week trades at 4x of the initial cost already...
As a result we had a lacklustre NY session yesterday. $INTC earnings were great however the stock retraced its gains. Possibly from the CFO commenting that "if we are super successful, we may need to tap the capital markets to drive more investment".
Initial price action in Korea was panicked as a note from MS's Shawn Kim in 2022 was circulated and edited to appear as from today. Shawn was bearish on memory before and published a piece called "Memory Winter". That said, i respect Shawn for his independence and that puts him ahead of most bank analysts. However, this points to the weakness in the korean markets - most participants have been shaken out and exhausted. Korea is also raising margin requirements on leveraged products on 31st Jul. This will put pressure on local markets in the short run. IMO, the spread between $0660 and $SKHY will widen as the 2 different investor base diverge in their holding power and cash reserves...
$CXMT while being seen as the cheaper alternative (not much cheaper frankly) has also raised prices. For the DDR5 64GB modules, it is reportedly charging more than Samsung now... In other news, $CXMT also kicked out Huawei engineers from their clean room when Huawei did not agree to a price hike...The memory shortage is global. China does not have a surplus of memory.
Markets always change. There are no similar regimes as participants within continue to learn and evolve. It is likely that the upcoming market regime will look markedly different from the April-May everything easy rally that people were accustomed to. In this regard, i think it is critical for everyone to develop their own thesis and truly know what they own. Do not be swayed by influencers peddling their own thesis or doing all-in challenges. At the end of the day, it is your own hard earned money at stake. Respect it by at least doing the bare minimum of due diligence.
Good luck!