Rebirth of the Capital Legend

"The general trend is definitely biased towards the main heavyweight sectors," Lu Xiangxiang continued. "However, during periods of emotional fluctuation, some concept stocks in the 'emerging industrial chain' sector may still be subject to renewed speculation by short-term funds if they are accompanied by positive news. But no matter how this short-term speculation unfolds, the overall trend of the market's main sectors rotating should not change."

“If the related industry sectors and concept sectors in the ‘emerging industrial chain’ main area cannot break through the trend of sustained market performance, theoretically speaking, the market fluctuations in this area and the speculation of related stocks should be ineffective investment opportunities, right?” Yu Xiaolu said. “After all, the pulse-like fluctuations are extremely difficult to grasp, and they lack certainty and sustainability. They should not attract the participation of institutional investors who need certainty and sustained guidance.”

“That’s true.” Lu Xiangxiang nodded and said, “The ‘emerging industrial chain’ line can indeed be seen as an ineffective investment opportunity. Given the lack of underlying logic and future expectations, and the fact that the internal shareholding structure is always chaotic, for this line to achieve sustainability and certainty, the market liquidity must change from its current state of relative scarcity to a state of abundance.”

“However, it’s unlikely that the market’s liquidity will change fundamentally at present,” Yu Xiaolu said. “With the booming offline real estate market and the continuous surge in housing prices, all the hot money in society has been attracted to the housing market. In addition, the Federal Reserve has threatened to enter a rate hike cycle and gradually exit QE, which has led the central bank of China and even major central banks around the world to tighten liquidity. This has further reduced the funds flowing into the financial market. The lack of liquidity has determined the constraints on the overall market valuation. Without a major change in the fundamental logic and strong guidance for the expectation of explosive performance, the valuation of many stocks at the current position will not only not increase, but may be further compressed by the market.”

“So…” Lu Xiangxiang smiled and said, “A broad-based market rally is basically unlikely to happen. From a fundamental perspective, the current A-share market will likely remain in a localized market trend for a long time to come.”

"If that's the case..." Yu Xiaolu pondered for a moment before replying, "The bear-to-bull market shift that many people are hoping for is probably not going to happen, right?"

"No doubt about it, it's definitely hopeless," Lu Xiangxiang said. "Looking at each previous bull-bear cycle, the decisive conditions are basically the same: sustained expectations of macroeconomic growth, ample market liquidity, expansion of demand in core industries, or expansion of demand in major industries that can accommodate huge amounts of capital, bringing opportunities for industry valuation increases, coupled with favorable policies, are needed to truly open up the overall market valuation and completely restore investor confidence."

Moreover, even if these conditions are met, market feedback generally needs time to develop.

Currently, let's not even talk about whether these conditions and factors are met.

In terms of time for fermentation, it is also completely insufficient.

It's been less than a year since the last bull market ended. A huge amount of trapped capital from that bull market hasn't been absorbed yet, and much of the capital trapped in the last bull market is still tied up. Under these circumstances, even if all the necessary conditions are met, it's highly unlikely that a new bull market will be launched.

“That makes sense.” Yu Xiaolu nodded and said, “President Lu understands things clearly. Then let’s continue to stick to the main theme rotation approach and stay focused on the ‘major infrastructure’ line.”

"Hmm," Lu Xiangxiang responded, then added, "Besides the fluctuations in the market, we also need to pay attention to the news outside the market, as well as the performance of related stocks in the Hong Kong stock market. The logic reversal of this round of the 'major infrastructure' theme, and the explosive point when the market broke out, felt to have originated from mainland property stocks in the Hong Kong stock market. The value reassessment of the entire theme also spread from related stocks in the Hong Kong stock market. Since the starting point of the market was a group of mainland property stocks in the Hong Kong stock market, the valuation and market trend of those mainland property stocks in the Hong Kong stock market will naturally affect a group of real estate industry chain stocks in the A-share market."

"Okay." Yu Xiaolu nodded again and said, "I'll be careful."

As the two analyzed and discussed the current market trend and its future direction, it was already 6:30 PM.

At this time, many financial and investment institutions begin to close for the day.

However, institutional groups are no longer speaking out as a whole.

At this moment, the discussions on major online stock investment platforms and in various private groups of speculative investors are still very intense.

"Damn it, that 'Rongchao Business Center' guy actually dumped so many shares of 'Huawen Online' today!" Amidst the heated online discussions between bulls and bears, He Zhong, from the 'Gusu Northwest Street Branch' seat in the 'Gusu Group's' main speculative trading group, who hadn't yet fully withdrawn from the 'emerging industry chain' sector, stared at the disclosed trading data of 'Huawen Online,' the leading stock in the concept sector, and couldn't help but curse, "If this guy hadn't dumped so many shares this afternoon, I feel like 'Huawen Online' might not have crashed. Sigh... what a short-sighted guy. Next time I see him... I'll definitely dump my shares first."

"How much did Lao He lose today?" Lao Qian couldn't help but ask in the group.

He Zhong responded: "The intraday loss exceeded 1000 million. Sigh... I didn't expect the market to crash so quickly in the afternoon. I originally thought that the 'emerging industrial chain' sector would only diverge when the market opened tomorrow. The morning's trend was so strong, with such strong consensus. Who knew that a lot of junk funds would start to rush out in the afternoon? The key is that there was no negative news in the entire 'emerging industrial chain' sector today. These guys... really deserve to be scolded. They created such a high loss effect today."

"A loss of 1000 million in one day?" Zhang Xinlei replied. "Old He, your position wasn't small, how could the loss be so big?" "That's right," He Zhong said. "With that kind of sentiment in the morning, there was no reason not to increase the position. But with the afternoon plunge, those increased positions can't be sold. The key is that this loss won't be contained when the market opens tomorrow. I don't know how 'Huawen Online' will open tomorrow. If it opens at the daily limit down due to extreme pessimism, then the sentiment feedback of the entire 'emerging industry chain' main theme will continue to drop. I estimate that I'll have to write off another 1000 million in profit losses before I can withdraw."

"Old He, this is the result of your greed." Zheng Jinming couldn't help but say when he heard that He Zhong had such a heavy position. "Before the 'emerging industrial chain' sector plunged, when the sentiment was at its peak, I analyzed this sector. It was impossible for it to continue to rise to a very high level. Even if it continued to rise and developed an unexpected market trend, it would be a risk-reward trade. It's not worth it to gamble heavily at this time."

“Indeed.” Old Qian nodded slightly and smiled. “Old Zheng, you’re really something. You predicted the plunge in the ‘emerging industrial chain’ sector in advance and took profits and reduced your positions on a large scale ahead of time. However, although the ‘emerging industrial chain’ sector has retreated on a large scale, the overall market trend is not bad. In the final stages of today’s trading, the Shanghai Composite Index and the Shenzhen Component Index withstood the selling pressure. Moreover, some stocks in the core ‘major infrastructure’ sector even managed to reach new highs despite the sharp drop at the end of the day. This shows that the overall investment sentiment in the market is actually in a relatively positive state, and there is no need to be overly pessimistic or worried about the index trend.”

"The performance of the 'major infrastructure' sector in the final minutes of trading today was indeed beyond expectations," Zhang Xinlei said. "Old Zheng, did you manage to capitalize on this opportunity at the end of the day by withdrawing early?"

Zheng Jinming sighed softly and said, "It's impossible to perfectly time short-term market movements every step of the way. To be honest, I didn't expect the 'major infrastructure' sector to rebound so quickly at the end of the day, even surging against the trend. Especially with 'Huaxin Cement,' institutional investors were buying heavily when the stock was falling sharply, so I had a high opinion of it. However, the stock opened significantly lower than market expectations this morning, and the sharp drop during the morning session made me misjudge its trend. This caused me to hesitate when the stock surged in the afternoon and I didn't dare to take a position."

“Indeed, the morning trading of ‘Huaxin Cement’ was very unusual,” Zhang Xinlei said. “Originally, as expected, after yesterday’s trading data was released, when everyone saw that the stock was falling sharply while institutional investors were still buying heavily, given the overall bullish sentiment in the market this morning, it should have opened significantly higher and fluctuated. Unexpectedly, it opened slightly higher and then quickly plunged into deep water. I believe that very few funds entered the market to buy during the morning’s trading of ‘Huaxin Cement’, and I also believe that quite a few funds missed out on this stock’s performance today.”

"Indeed, no one expected that this check would be the one to secure the core leading stock, 'Huawen Online'," Lao Qian said. "The check moved so fast this afternoon that it's understandable that many funds missed out."

“I also missed out on the ‘Huaxin Cement’ stock,” Zhang Xinlei said. “However, I did manage to arbitrage some shares of ‘Tianshan Cement.’ I feel that these two stocks are somewhat similar to ‘Huawen Online’ and ‘Huawen Media’ back then. Moreover, given the arbitrage trend of ‘Huawen Online’ and ‘Huawen Media’, I feel that subsequent funds will definitely replicate this arbitrage logic again and speculate on ‘Tianshan Cement’.”

“Hmm, Lao Zhang, your arbitrage thinking is pretty good,” Lao Qian said. “I didn’t keep up, so before the market closed, when I saw ‘Oriental Yuhong’ stock rise, I still bought this leading stock and added some positions.”

"Holy crap, are you guys all this fast?" He Chong couldn't help but complain when he heard that the two of them had already shifted their positions to the 'Major Infrastructure' main theme. "Does it feel like I'm the only one who got hurt today?"

"You can't say that," Lao Qian replied. "I also lost money overall today, mainly because the 'emerging industry chain' sector was hit too hard. The stock 'Huawen Media,' which I entered for arbitrage, was hit by a limit-down move. Fortunately, the amount of money I invested was not large, and the position was very light. I can cut my losses when the market opens tomorrow, so it won't have too much impact on the overall position and profit/loss of my account. I think I understand now... It feels like the market still hasn't broken free from the heavyweight main theme. Institutional funds are really completely clustered in these heavyweight main themes, and they don't even give a second glance to the leading stocks in other concept sectors and industry sectors related to the 'emerging industry chain' theme."

“Yes!” Zhang Xinlei said, “This has led to a situation where institutional seats generally have a premium in the market, while speculative capital seats, apart from Mr. Su’s ‘Fuxing Road’, seem to have no premium at all.”

"Hmm." Old Qian nodded. "The market trends really do come in waves."

"Many people were caught off guard by today's late-day reversal," Zheng Jinming paused and added, "And judging from the post-market sentiment, the bullish sentiment surrounding the 'major infrastructure' theme will likely intensify further tomorrow, and the market trend will probably concentrate even more on the heavyweight themes."

"So, does that mean the 'emerging industrial chain' line is completely finished?" He Zhong frowned.

Zheng Jinming said, "Pretty much. But I think the market attention and post-market discussion surrounding 'Huawen Online' are still very high today. Its market recognition is still there. If the stock price is pushed down low enough during tomorrow's opening auction, and it opens at the daily limit down, there's a high probability that other speculative funds will try to buy on the dip and make a profit. So, a limit down could actually be a chance to reduce losses. If it opens slightly lower, or around 5%, then there's basically no hope."

“Agreed,” Zhang Xinlei replied. “But whether it opens lower or at the daily limit down, ‘Huawen Online’ is a stock that only presents a selling opportunity, not a buying opportunity.”

"Sigh, it seems we'll have to be decisive and cut it off tomorrow," He Zhong sighed.

"Old Zheng, what do you think will happen to the 'Huaxin Cement' check?" Old Qian pondered for a while and then asked.

Zheng Jinming thought for a moment and said, "According to my understanding, given the sentiment after today's market close, especially since everyone believes this stock is the undisputed core leader of today's market trend and successfully blocked 'Huawen Online,' the previous leading stock, theoretically, this stock should accelerate with reduced volume tomorrow. The ideal scenario would be a significant gap up followed by an immediate limit-up. A more realistic scenario would be a gap up followed by consolidation, then a limit-up with increased trading volume. In short, if this stock fails to hit the limit-up tomorrow, it will fall short of expectations." (End of Chapter)