Market volatility has increased substantially recently. Yesterday’s sell-off started in Korea. The KOSPI fell almost 10%, while SK Hynix and Samsung both dropped more than 12%. The main trigger was MSCI keeping Korea in the Emerging Markets category. The expectation was that Korea could move to Developed Market status, which would have brought billions of dollars in passive inflows. But that didn’t work out.

That started the market drop. And since there has been ton of leverage as investors in Korea and Taiwan have borrowed record sums in margin loan, it triggered a mass liquidation which spilled over across the globe. Profit taking ahead of Micron’s definitely did not help here.

The Taiwan and South Korea markets both show how much leverage and speculative energy has built up around the AI and technology trade globally.

There are a few potential catalysts this week that will likely have an impact on the market:

1. 6/24: Nvidia shareholder meeting: I don’t expect much here, usually shareholder meetings aren’t filled with much commentary. But, Jensen is the master pumper and he knows how much weight Nvidia carries on their shoulders. Maybe he provides some commentary to try and lift the market

2. 6/24: Qualcomm investor day: This could be an event that moves Qualcomm and in turn the rest of the semi trade but I don’t expect an outsized impact on the remainder of the market.

3. 6/24: Micron earnings report: This is the big one. This will have a massive impact on the market. Their commentary, guidance, etc. will set the stage for the memory trade which has been the biggest and most important area of the market.

I’m generally very positive on memory, but today’s report is going to be very important because expectations around memory, HBM, AI demand, margins, and capex are extremely high. That is a tough crowd to please.

If margins aren’t revised higher investors may question whether the upside has already been priced in. If margins are revised sharply higher the market may start debating whether the broader AI ecosystem is running too hot and whether hyperscaler spending is becoming too aggressive.

If capex comes in lower than expected some investors might worry that demand isn’t as strong as the market hoped. If capex comes in much higher than expected market participants may start asking whether too much supply is eventually coming online.

Even if the stock drops after earnings, continued weakness in this stock is likely worth buying.

But after a historic rally some volatility was inevitable. That’s important to recognize and internalize. I’ve discussed that in the recent Market Update:

“The market is basically in limbo, with no clear direction outside of sideways action. Hence, it’s important to be selective right now.

Unless we break out to new all-time highs, I’d stay a bit more cautious here. The key is for the market to hold and breakout of this level. If it starts to roll over, this pullback could still turn into a larger correction. Even so, we’re still in a bull market. And bull markets usually do not die that easily. One correction does not end the whole trend. But they can still hurt, especially if you are too aggressive at the wrong time.

It’s impossible to know exactly what will happen in advance that’s why it is critical to have a scenario plan already prepared. If the market breaks out to new highs, it’s time to get more aggressive again. If it keeps moving sideways, stay patient and selective. If it starts to break down, protect capital. For now, there is no reason to be euphoric.“

So, the market couldn’t break out higher and rolled over. We’re now at a critical break point. It’s sitting just above the 50 SMA, and if that level does not hold, a deeper correction becomes even more probable. Micron’s report today will be very important. But what which ever way it goes be prepared for volatility. Make sure to keep your exposure to risk in control and of course avoid leverage at all costs. I’ve written about how to handle periods of volatility here.

There’s no free lunch in the markets and volatility is the price of admission.

For now this still looks like a bull market going through a much needed digestion phase after a massive move. The difference is that the next few days or maybe even weeks will likely require a bit patience and more discipline than the last few months.