Rebirth of the Capital Legend

"Profit-taking selling is pouring in." Noticing the market was entering the final half hour of trading, Xu Qiao, a member of the "Magic City Ultra-Short Gang," observed the market trends and lamented, "The market's core trends have held up for so long, but finally gave way in the final trading session."

"The main reason is that the emerging industry chain is performing so poorly." Old Zhang, upon hearing Xu Qiao's lament, took over and said, "The collapse of Huawen Online has completely extinguished the market's short-term speculation. Also, after the sustained and substantial rebound over the past two days, the market is now heavily accumulating short-term profit-taking. With such a heavy accumulation of short-term profit-taking, the market should fluctuate at this point to clean out the floating chips."

Old Wu paused, then added, "There's no problem with the volatility clearing floating chips. It's just that the Shanghai Composite Index hasn't stabilized above 3100 points after all this time, which is very hurtful. If the index returns to fluctuating within 3100 points, it means it hasn't escaped the previous range-bound pattern. During this range-bound pattern, the expectations of the majority of investors will undoubtedly decline compared to the previous two trading days. When everyone's expectations decline, and the loss effect on the market gradually spreads, then most investors, when the market's enthusiasm cools, may not have such a strong desire to continue chasing highs or even follow up on some core hot stocks."

"But if volume doesn't support it and it forces a breakthrough..." Lao Zhang said, "then it will overdraw the market's already limited core bullish momentum, leading to an intensified market correction. I feel like the Shanghai Composite Index is trending back towards 3100 points after confirming the breakthrough. Furthermore, looking at the major market trends, although the emerging industry chain and the entire small and medium-sized cap and micro-cap concept stocks are performing poorly, the market's core weighted stocks are still very stable."

Xu Qiao nodded and said, "That's true. Look at the liquor and white goods sectors. Even as the market generally plunged, they were actually still rising against the trend. This shows that many investors who had previously entered the market, that is, the large number of profit-taking investors, after selling some concept stocks that lacked fundamental support and had mediocre future prospects, were embracing the main line of weighted stocks and following the direction of the institutional funds to speculate."

"The unusual trends in the liquor and white goods sectors..." Old Wu said, "could it be that the market's speculation on small- and micro-cap stocks has cooled, and with risk aversion rising, funds are shifting higher and lower?"

Lao Zhang responded: "Although there is a logic of capital cutting in the main line of weighted stocks, especially the unusual trends in the liquor and white goods sectors, it seems that this is not the main driving force. In this line, the amount of hot money buying is actually not that much, and it is difficult to affect the trends of the leading stocks in these two major sectors. It seems that the main institutional funds concentrated in this direction are more guiding these two sectors and influencing the trends of stocks such as Qianzhou Moutai, Wuliangye, Luzhou Laojiao, Gree Electric Appliances, and Midea Electric Appliances. And the reason why these main institutional funds are pulling these two sectors is definitely because of the expectations of the third-quarter performance guidance."

"And the support from President Su's Huayi Capital, right?" Xu Qiao asked. "Recently, in addition to the liquor and white goods sectors, which President Su previously heavily invested in, the stocks in major infrastructure and new energy supply chains, as well as some tech manufacturing giants, have all performed very well and have been subject to concentrated speculation from a large number of capital groups.

I think the underlying logic behind the market hyping up Mr. Su’s holdings in concept stocks has always existed.

The two major sectors of liquor and white appliances are indeed the sectors and main directions that Huayi Capital, headed by General Manager Su, first invested heavily in at the beginning of the year.

This is calculated based on the approximate holdings of Huayi Capital, headed by Mr. Su, in these two major sectors.

Mr. Su's holdings in these two sectors should be at least 300 billion, and since the establishment of the Huayi Capital, the institution headed by Mr. Su, the holdings have probably not been reduced until now.

Under the guidance of other related concept stocks held by Mr. Su, the upward breakthrough trend continues with great momentum.

The influx of various capital groups has led to a relatively stagnant performance in the past. Now that the chip structure has been adjusted, the focus has shifted to the main sectors of liquor and white goods, and the logic is logical.

"The logic of expectations and the concentrated buying of capital groups you mentioned is most likely correct," said Lao Wu. "But I think that in addition to these factors, the upward trend of the liquor and white appliance sectors today is actually driven by the market's rising risk aversion. If you look at the intraday charts of these two sectors, you can basically confirm this.

The industry sector indices corresponding to these two main lines were actually relatively flat in their performance in the morning.

It did not show a strong side, nor did it form a trend independent of market conditions.

However, after the market entered the afternoon trading session, especially when the emerging industrial chain line began to generally dive, and led other main sectors of the market to decline simultaneously.

It can be clearly seen that the two major sectors of liquor and white appliances are rising against the trend.

That is to say...

Compared with the market trend in the morning, during the trading period when the market plunged in the afternoon, the enthusiasm of various capital groups to buy liquor and white appliances increased significantly. If, according to Xiao Xu's analysis just now, the driving force leading to the abnormal upward movement of the two major sectors of liquor and white appliances came from the logic that various capital groups vigorously followed the trend to hype the concept stocks held by Huayi Capital, an institution headed by General Manager Su, then the two major sectors of liquor and white appliances should have performed strongly enough in the morning's market trend.

It was not until the market plunged in the afternoon that it showed up.

Moreover, in today's afternoon market trend, in addition to the two major sectors of liquor and white appliances, the concept stocks held by Huayi Capital, headed by General Manager Su, were particularly strong.

In other main market areas besides the liquor and white goods sectors.

The institutional holdings of Su's Huayi Capital, a capital-backed company, haven't fluctuated in tandem with the corresponding holdings in the liquor and white goods sectors. This suggests that the market's speculation on Su's Huayi Capital holdings isn't the core logic driving today's counter-trend gains in the liquor and white goods sectors.

"Well, I agree with Old Wu," Old Zhang nodded in response. "But if investors were just following the trend and speculating... it wouldn't be possible to achieve such strong and sustained growth. The liquor and white goods sectors have been so strong, and have been able to break new highs and develop a consistent upward trend over the past six months. The main underlying logic is still the reversal of fundamentals and the explosive performance of leading stocks in related industries."

"That's for sure," Xu Qiao said. "The underlying logic is definitely correct. The resulting premiums in the leading stocks of these related industries are definitely driven by various groups of investors following the trend and speculating. Of course, that's not the primary motivation."

"Regardless of the situation, it's a good thing that the two major sectors, liquor and white goods, have been able to step up and stabilize the index trend," said Lao Zhang. "Without the support of these two strong sectors, the Shanghai Composite Index would have already retreated by 1%, and the index would most likely have fallen below 3100 points."

"Well, the current trends of these two sectors are definitely beneficial to the entire market." Old Wu nodded and continued, "But as the saying goes, a single tree cannot support the market. I feel that the liquor and white goods sectors alone will still struggle to support the entire market, right?"

Lao Zhang nodded and said, "That's for sure. Adjustments are likely unavoidable."

"So, is there no buying opportunity in today's main sector of the new energy industry chain after the divergence?" Xu Qiao asked. "Today's overall market trend is to adjust downward. The trend of the leading stocks in the main concept of the new energy industry chain, which have turned from divergence to consensus, can be seen as a corresponding divergence from the overall trend of the sector. Under such circumstances... I feel that many of the so-called strong stocks in this line today, even if they can hold up before the closing, will most likely fall after tomorrow's opening.

If these stocks experience a further drop at the opening tomorrow, the outlook for the new energy industry chain will likely be even worse.

In addition, the new energy industry chain is currently recognized as the strongest core line in the market. When the strongest core line in the market falls into a general adjustment state, the short-term speculation sentiment in the market will definitely continue to cool down. At that time... I am afraid that the loss effect of the market will be further amplified.

It should be said that it is somewhat similar to the trend of the emerging industrial chain yesterday and today.

The overall adjustment of the emerging industrial chain line yesterday was not large. Even a number of core concept leading stocks on this line closed at the daily limit. It should be said that the overall short-term speculation sentiment of the emerging industrial chain line yesterday was maintained relatively well.

However, in reality, the willingness of funds to go long is no longer strong.

This led to a sudden collapse of the entire emerging industry chain sector, even though the index performance was stable after the market opened today. When the core concept leaders began to generally make up for the losses and adjust, the trend of the entire main sector collapsed. Not only did this sector collapse and plunge, but its loss effect was instantly amplified on the market, and it also dragged down other main sectors of the market and a number of other concept leading stocks.

"So, Xiao Xu, what you're saying is..." Lao Zhang said, "Will the trend of the new energy industry chain tomorrow replicate the trend of the emerging industry chain today?"

Xu Qiao nodded and said, "That's what I think. Of course, it's just a guess and may not be correct."

"That makes sense." At this time, Brother Chen, who had been silent in the group, suddenly spoke up, "Generally speaking, sentiment gradually fades, and this ebb trend doesn't happen overnight. Just like when we choose the main sectors for trading, we all know that the strongest main sectors are often the last to adjust. The same is true for different stocks in the same sector.

General concept theme stocks tend to follow the market trend and the fluctuations of market sentiment.

The first to adjust.

When these stocks showed a more obvious loss-making trend, the hype sentiment in the market was suppressed.

As the subsequent trading time progressed, the core leading stocks in the entire sector, where various capital groups were most concentrated, began to adjust to make up for the losses.

Therefore, tomorrow, there is a high probability that the differences in the market trends in the main sectors of the new energy industry chain will further intensify.

However, I feel that the market trend of the new energy industry chain is far from over so far.

If this line shows a relatively large correction trend tomorrow, and the corresponding core concept leading stocks have a large intraday retracement, it will be a good buying point.

Moreover, the emerging industrial chain has brought down the entire market today.

As a result, during the closing trading period, a large number of early profit-taking funds fled the market, putting pressure on the market trend.

However, due to the entire main line, the corresponding stocks themselves are positioned very low.

The profit margin is very limited.

At the same time, after a large number of trapped shares are trapped, the momentum for continued selling is very limited.

Therefore, after today's sharp adjustment, this line may regain strength and form a significant rebound in trend.

In short, we cannot continue to be bearish at this position.

Of course, if we want to gamble on this line, I estimate that the space is relatively limited.

After all, the underlying logic of this line is not strong, and the corresponding future expectations are also average. Even if the momentum of the sell-off is average, even if there is a subsequent oversold rebound, the space is very limited.

There is a high probability that this line will maintain a sideways fluctuation at the bottom for a long time in the future.

It can’t fall much, but it can’t rise much either.”

"According to the logic you've stated, Brother Chen, the main sectors suitable for heavy investment in the current market should still be the new energy industry chain and the major infrastructure sector, right?" Lao Zhang said. "As for the smartphone industry chain, I feel that Apple's new product launch is very close. The closer it is to the launch, the smaller the expected space will be. A lot of funds speculating on this expectation will also cash in on the expected gains before the launch, thereby profiting and fleeing. Therefore, the expected space for growth and the driving force for capital to go long in the smartphone industry chain, especially the Apple industry chain, should show a decreasing trend as subsequent trading time passes. It is not advisable to continue to invest heavily in it."

Brother Chen nodded slightly and said, "Old Zhang, you're right. The smartphone supply chain is almost at the stage of realizing expected gains. However, the medium-to-long-term logic of this sector should still be positive, and its fundamentals are showing signs of reversal. If a large number of early investors take profits and the sector undergoes a deep correction, it's still worthwhile to continue speculating." (End of Chapter)