U.S. stock semiconductor chips continue to decline; how long will it take to adjust?

Recently, the sell-off in the U.S. stock market's memory chip sector can no longer be described simply as a "correction." Last night, former chip star stocks like SK Hynix, Micron, and SanDisk continued to decline collectively. The Philadelphia Semiconductor Index (SOX) has dropped from over 14,600 points a month ago to currently over 10,400 points.

Now, all investors are asking the same question: how much lower will memory chips fall? Is the promised "All in AI" narrative still viable?

BIT Securities will provide an analysis to address this major uncertainty in the current market.

1. Technical Bear Market Confirmed

A technical bear market is a concept defined purely by price decline: when an index or asset drops 20% or more from a recent significant high, it is said to have entered a technical bear market. It does not involve any fundamental judgments, only price.

Applying this to the Philadelphia Semiconductor Index (SOX), we can calculate the following numbers:

• On June 22, SOX reached a historic closing high of 14,634.72 points.

• The bear market threshold is: 14,634.72 × 80% = 11,707.78 points.

• On July 17, SOX closed at 11,673.89 points, officially falling below the threshold, confirming entry into a technical bear market. Since then, the index has continued to decline, currently reaching 10,447.49 points, moving further away from the threshold.

What does this number mean? It means that the narrative of "All in AI, blindly buying semiconductors" has at least temporarily failed. The market is no longer a one-sided logic of "buying on dips," but has entered a phase that requires a reassessment of risks.

2. A Bear Market Tells You How Much It Has Fallen, But Not How Much Longer It Will Fall

First, it must be clarified that a technical bear market is a "statement of fact," not a "predictive tool."

It tells you that the index has fallen more than 20%, but it cannot answer "Will it continue to fall, and where is the bottom?" Historically, some technical bear markets are the starting point for V-shaped recoveries, while others mark the beginning of deep bear markets. What distinguishes them? The core key point lies in whether the source of selling pressure has been cleared.

The source of selling pressure in this round of memory chips has almost reached a consensus in the market— the South Korean stock market is undergoing a severe deleveraging, and the memory sector is likely to stabilize only after this deleveraging is complete.

Since the beginning of the year, South Korean retail investors have been aggressively betting on leading stocks like Samsung and SK Hynix using margin financing and single-stock leveraged ETFs. The balance of margin financing surged from 27.4 trillion won at the beginning of January to a peak of 38.6 trillion won on June 24.

However, the problem with leveraged ETFs lies in their mechanism: they "increase positions when prices rise and reduce positions when prices fall," enforcing a rebalancing. During an uptrend, they act as amplifiers, but once the trend reverses, they become a meat grinder— falling prices trigger margin calls, and failing to meet margin calls leads to forced liquidation, further exacerbating the decline. This is a typical negative feedback spiral that, once initiated, is not subject to human will.

3. When Will Deleveraging End? Focus on Three Signals

This is the real core issue. Investors might pay attention to the following three observable indicators:

• Signal 1: Margin financing balance. Peak of 38.6 trillion won (June 24) → dropped to 32.7 trillion won by July 23, but the decline is far from sufficient. This indicator needs to show that it has stopped declining and stabilized clearly to indicate that the margin financing has nearly cleared.

• Signal 2: Amount of forced liquidations. Approximately 550.8 billion won in March → soared to 1.12 trillion won in June → dropped to 473.6 billion won in the first half of July. This is the most intuitive "bleeding amount" of deleveraging, which needs to continuously fall back to normal levels— for example, below several hundred billion won per month, to be considered a stop to the bleeding.

• Signal 3: Volatility VKOSPI. This is the "fear index" of the South Korean stock market, calculated from the option prices of the KOSPI 200 index, measuring the market's expectation of severe volatility over the next 30 days. During this round of panic, it once surged to five times the VIX and has remained high at 85.66. Only when it falls back to a normal range can it be said that the "fear premium" in market pricing has been squeezed out.

4. Final Conclusion: The Process Is Not Complete, But Mid-to-Late Stage Characteristics Are Visible

From the latest market situation, this round of deleveraging is clearly not over.

The KOSPI has triggered circuit breakers nine times this year, alternating between sharp rises and falls— this is precisely a typical characteristic of the mid-to-late stage of deleveraging: the peak of panic selling has passed, selling pressure is beginning to weaken, but the market structure has not yet stabilized, and it will swing violently at the slightest disturbance.

To summarize the above points:

First, the SOX has fallen below the threshold of 11,707.78 points, confirming a technical bear market, and the mindless narrative of "All in AI" has ended.

Second, the underlying driver of this round of decline is the forced clearing of leveraged funds in South Korea; the bottom does not depend on how low prices fall but on how far the leverage has cleared.

Third, to observe the clearing progress, watch three signals: stabilization of margin financing balance, return of forced liquidation amounts to normal levels, and VKOSPI falling back to a normal range. Based on the frequency of circuit breakers and forced liquidation data, we are currently in the mid-to-late stage of deleveraging— the most panicked phase may have passed, but the phrase "structure is not stable" means that bottom-fishing at this time is still a left-side trade.

For market participants, what is truly useful at this stage is not predicting the bottom price but establishing a set of "signal confirmation" discipline: before signals stabilize, control positions and leverage; after signals are confirmed, then discuss layout.

BIT Securities states that in response to the complex market environment, margin financing and options services can provide traders with multidimensional risk management and capital enhancement paths:

Margin financing: Using margin buying can increase capital efficiency during significant market corrections and participate in structural rebounds; using margin selling can establish short positions against targets directly affected by price wars and under pressure from fundamentals, hedging the downside risk of holdings.

Options: Traders can buy put options (Long Put) to build a downside protection net for overall holdings, guarding against sudden macroeconomic negatives and liquidity shocks; they can also buy call options (Long Call) to participate in the elastic returns of high Beta assets at a limited and fixed cost.

Risk Warning: Historical data does not represent future performance. This article is for market observation only and does not constitute investment advice. Please make independent judgments based on your own risk tolerance.