South Korea Doubles... With a Catch

A Melt Up is underway right now. But not in the American stock market...

Sure, the U.S. market is performing well. The S&P 500 Index has nearly doubled over the past three years. And we've seen an incredible rally in recent weeks.

That's not a Melt Up, though. A Melt Up is when prices soar at unsustainable rates.

I expect to see this kind of euphoria in the U.S. soon. But if we look abroad, it's already happening – in South Korea.

The South Korean stock market has tripled over the past year alone. That's one of the strongest rallies in the country's history. And while this move is a warning sign, history shows the gains could still increase from here.

Let me explain...

South Korea Becomes a Bet on AI

South Korean stocks are soaring for one reason. And it has little to do with the country itself...

It's all because of AI. Specifically, the growing demand for the dynamic random-access memory ("DRAM") used in data centers.

DRAM provides a computer's working memory. The problem is that there are only three main DRAM producers. These three companies have pricing power and infinite demand for their products. So their stocks have soared.

Importantly, two of those companies are South Korean: Samsung and SK Hynix. Together, they make up about half of the Korean stock market.

Their shares have soared hundreds of percent... carrying the entire Korean market higher along the way. Take a look...

This market has had an incredible rally. It has more than tripled from trough to peak over the past year.

This is what a Melt Up looks like. And the boom is hitting unprecedented levels.

To see what to expect from here, I looked at the country's largest trough-to-peak rallies of a year or less. South Korean stocks have only doubled or more within that time frame four other times. Here's what happened next...

South Korean stocks perform well over the long term, rising 9.8% per year since 1980. But these setups can lead to incredible outperformance...

Historically, we've seen six-month gains of 28.4% and one-year returns of 38.6%. Those are staggering results.

They don't tell the full story, though...

You see, in three cases, South Korean stocks had barely doubled within a year. Only in 1999 did we see an extreme setup similar to today's... with this market more than tripling within a year.

Back then, South Korean stocks still rallied another 10% before finally peaking.

So today's rally isn't a sell signal... But it also tells us not to expect South Korean stocks to double again from here.

Momentum is still incredibly strong in this market right now. And I'd never take strong momentum as a reason to sell.

But this rally is entering the late innings.

Historically, rallies like this have happened closer to an eventual top. Keep that in mind before chasing this incredible boom.

Good investing,

Brett Eversole

Editor's note: Even U.S. stocks are rising at a pace seen only a handful of times in history. And now, Brett – who helped predict the Dow's rise to 50,000 – says we could soon see a powerful "cash panic," where trillions of dollars sitting on the sidelines will rush back into the market. Check out his latest research to find out how you can benefit before the frenzy peaks.