I won’t harp on this too awful much unless things take a turn for the… well, for the awful stateside, where Micron results loomed large this week.

But in light of the fireworks in South Korea and the knock-on potentials, I’ll dwell another beat on “avalanche anatomy,” if you will.

The leveraged ETF discussion’s becoming more pressing all the time. Those products are embedding a meaningful quantum of “accelerant” risk in markets via their end-of-day rebalancing needs, which can amplify directional moves.

That’s on full display in South Korea, where regulators are belatedly coming around to the idea that they opened a Pandora’s box by green-lighting product launches tied to SK Hynix and Samsung.

This is so well-socialized by now that on days when the projected rebalancing flows are large, they (the flows) tend to get front-run, adding an extra layer of reflexivity to what’s already a self-feeding dynamic.

The updated figures above, from Nomura’s Charlie McElligott on Tuesday, show you AUM for the leveraged ETF universe and the implicit rebalancing flow for a (every) 1% move.

The crucial point is that this is just one source of directional propellant. There are several in modern market structure, and they compound.

This cuts both ways, of course, which is why melt-ups feel increasingly inexorable the same way it often feels as though selloffs exhibit a tendency to “cascade” beyond what one might otherwise attribute to a simple “fear begets fear” psychology.

You’ll politely recall that nearly nine in 10 leveraged ETF AUM dollars is allocated to big-tech, semis and thematic AI plays. Also note (remember) that the equity rally off the Iran war lows was characterized by a pronounced “spot-up, vol-up” regime in the tech/semi space, indicative of under-positioned market participants chasing into upside exposure through call-buying.

The result was a self-perpetuating crash-up in those sectors and stocks, yes, but also at the index level because the index(es) is (are) dominated by AI-adjacent names to the tune of nearly 40%. That’s the share of market cap attributable to SK Hynix and Samsung in South Korea and it’s also the share of S&P market cap attributable to the Mag7 plus Broadcom, AMD and Micron.

Between them, the figures above, also from McElligott’s Tuesday missive, tell the story. The top two panes show the enormous “buy” impulse from leveraged ETFs in semis and the Mag7. The bottom-left pane illustrates escalating relative demand for crash-up “protection” (i.e., tickets for a melt-up train that had already left the station) in semis. And the bottom-right pane shows the “weight” (if you will) of the accompanying delta.

The overarching point is that this can (and probably will in the event we go “wrong-way”) feel every bit as gratuitous in a downtrade as it feels miraculous on an upswing. In other words: If this turns, the same self-fulfilling dynamics will be in play, only in reverse.

As McElligott put it, editorializing around the drama in South Korea and tying it into the broader discussion about modern market structure, “it now should go without saying that this is a function of the inherent real and synthetic negative gamma of the massive AUM into single-name and thematic leveraged ETFs, along with options dealer positioning after the recent ‘spot-up, vol-up’ chase into upside, both of which create mechanical and pro-cyclical flows that will feed into the prevailing market move.”