Kospi Index recoils ahead of Samsung, SK Hynix earnings: buy the dip?

South Korea’s Kospi Index pulled back modestly on Monday, even as a risk-on sentiment spread in the financial market. It dropped to 6,650, down sharply from the year-to-date high of 9,387 as traders focused on the upcoming Samsung Electronics and SK Hynix earnings.

Samsung stock drops despite a $200 billion order

Samsung Electronics, the biggest company in the Kospi index, dropped by 40 basis points, even after the company secured a $200 billion deal from Broadcom, the American tech giant.

Samsung will provide products, including high-bandwidth memory (HBM) and foundry solutions to Broadcom in the next decade. Broadcom has become an important company in the chip industry thanks to its large partnerships with companies like OpenAI and Meta Platforms.

Samsung Electronics stock is likely falling as investors wait for a detailed financial statement this week. This report will provide more details than the provisional one that came out earlier this month. 

The initial statement showed that its operating profit jumped to KRW 89.4 trillion $58.4 billion in the second quarter. Its revenue jumped to KRW 171 trillion as demand for its products jumped. Despite this, the stock has pulled back as investors worry about the pace of data center spending.

SK Hynix, the other top company in the Kospi Index will also publish its numbers this week. These will be the first results since it made its US debut, raising over $25 billion. 

Analysts expect the upcoming results to show that SK Hynix's revenue surged as demand for its memory products remained strong. Like its peers, the company has been operating at full capacity this year, driven by the AI boom. The key question for investors is whether the memory industry's historical boom-and-bust cycle will eventually re-emerge.

South Korea benefiting from US-Iran war pause

The Kospi Index is falling despite the ongoing developments in the Middle East, where the US and Iran paused their fighting during the weekend.

US media reports that Trump was cautioned about the falling weapon stockpiles. Dan Caine, the Chairman of the Joint Chiefs of Staff, also warned that more attacks along the Strait of Hormuz would have a minimal impact.

Therefore, crude oil prices dropped on Monday, with Brent and the West Texas Intermediate (WTI) falling to $92 and $84, respectively. These developments are beneficial to South Korea, a country that imports all its oil and petroleum products.

Kospi Index technical analysis

Kospi Index chart | Source: TradingView

Technicals suggest that the Kospi Index may continue falling in the near term. It has already plunged to the 38.2% Fibonacci Retracement level on the weekly chart

The index also dropped below the 14-week Exponential Moving Average (EMA), a sign that bears have prevailed for now. There are signs that it has moved to the distribution or the markdown phases of the Wyckoff Theory.

The index is also slowly forming a bearish pennant pattern, which is characterized by a vertical line and a symmetrical triangle pattern.

Therefore, the index will likely continue falling as sellers target the psychological level of 6,000.