Rebirth of the Capital Legend

"Yes, I also feel that Shuguang Shares will most likely experience a sharp drop tomorrow." Chen Guiyun nodded and continued, "In a weak market and a zero-sum game, stocks that have hit the daily limit up for several consecutive days purely because of positive news are inherently lacking in terms of share support."

The new energy industry chain is already in a period of waning enthusiasm.

As a result, the fact that Shuguang Shares had such a large trading volume when it opened for trading meant that it was unlikely that there would be any follow-up funds to absorb the selling pressure.

However, judging from the situation, although the sudden drop in the price of Shuguang Shares has had some impact on the overall market trend and short-term speculative sentiment, it does not seem to have truly damaged the foundation of the short-term market ecosystem. Overall short-term speculative sentiment is still present, and most investors' confidence in going long has not declined significantly.

I originally thought that after the stock of Shuguang Co., Ltd. hit its daily limit and then fell, the major sectors of the market would experience a significant drop.

Many leading stocks with high market sentiment will also be affected to some extent.

Many short-term investors who have profited in the market will take advantage of this wave of price drops and sell off their holdings to lock in profits.

But look now...

As long as Beijiang Communications Construction, the core leader in market sentiment, doesn't collapse, it can still continue to open up room for further upward movement.

It seems that the direction of Shuguang Shares' stock is no longer that important.

With everyone's attention focused on the major infrastructure theme and on the stock of Beijiang Jiaojian, the market position and attention of the new energy industry chain theme and the stock of Shuguang Shares have declined significantly, naturally failing to shake the market's original short-term sentiment.

"Although Shuguang Shares is one of the most popular stocks in the market, its market position is indeed not comparable to that of Beijiang Jiaojian and Dongfang Yuhong." Hearing Chen Guiyun's analysis, Liao Guoxiang, who had been silent until now, chimed in, "In fact, its current market position is not as good as that of Tianci Materials and Changying Precision. So, while we can be a little wary of this stock's sudden drop in price, there's no need to worry too much. Of course, it's also true that today's market performance was weaker than expected."

"It's still a matter of trading volume," Li Jinshi said. "With market volume declining steadily, it will be difficult to maintain the high prices seen in the past few days. After all... no matter what, volume comes first and price comes second. Without sustained volume, it's hard to have a sustained market trend."

"Sigh, I really didn't expect the resistance at 3100 points for the Shanghai Composite Index to be so strong." Chen Guiyun sighed and said, "It has been trying to break through for several days but has not been able to hold its ground. Now it seems that the market is going to adjust downwards for a while and once again gather the strength to go long."

Upon hearing Chen Guiyun's words, Li Jinshi smiled and replied, "The range between 3000 and 3600 points is essentially a vacuum of shares left over from the last stock market crash. Trillions of yuan worth of shares are trapped in this range. It's not easy to loosen these trapped shares. The repeated fluctuations and ups and downs here are perfectly normal. We shouldn't have too high expectations. As long as the overall market trend remains upward and the technical pattern of the index hasn't broken down, we should be more patient."

"Old Li is right." Liao Guoxiang nodded and continued, "There are trillions of yuan worth of trapped capital piled up on top. Under the current macroeconomic environment, it's impossible for so much new capital to enter the market to quickly release these trapped positions. Since it's impossible to quickly release these trapped positions in the short term, we can only exchange time for space. So... at this position, no matter how much it fluctuates, it's a very normal trend. As long as the Shanghai Composite Index doesn't fall below the 3000-point platform, the market will continue to maintain a relatively bullish situation."

It is obvious that the Shanghai Composite Index does not currently have the momentum to continue falling or even plummet.

Furthermore, observe the market movement patterns during the recent sell-off.

The core market players, led by the "national team," are still actively supporting the market. They are maintaining their positions in the main sectors, such as large financial, power, and petrochemical blue-chip stocks, and are continuing to buy in, thus supporting the market.

As long as this massive group of major funds shows no signs of leaving the market.

Therefore, with this capital locked up in the market, there is no risk of a sustained sharp decline in the index.

With the support of the major infrastructure theme driven by fundamental reversals, the major consumption theme, the new energy industry chain theme which is still in the midst of bullish sentiment, and the smartphone industry chain theme, the overall market performance shouldn't be too bad.

Even though some market themes lack future prospects and were overhyped in the last bull market.

The downward trend continues, and it is showing signs of accelerating.

However, given that the overall investment style in the market has shifted from focusing on small-cap and micro-cap stocks to increasingly emphasizing blue-chip stocks with high certainty and clear future earnings growth, it is impossible to influence the overall market.

In other words, as long as the major infrastructure sector remains the leading driver of market growth.

Furthermore, as long as the two main themes of the new energy industry chain and the smartphone industry chain, as well as the major financial, petrochemical, and power sectors heavily invested in by the "national team," do not collapse and do not experience extreme downward trends, then we do not need to worry about the market entering another extreme mode of continuous decline or even a crash.

As long as the market does not exhibit such an extreme pattern, and as long as localized market trends emerge...

Or, to put it another way, the market can maintain a trend of rotating main themes.

Therefore, we can proceed with our normal trading strategy, continuing to focus on the leading stocks in the market and capitalizing on market sentiment.

"Old Liao's analysis is very accurate." Chen Guiyun nodded and said, "I also think that it's difficult for the Shanghai Composite Index to continue to fall sharply from this position, and it's also difficult for it to continue to break through upwards. It will most likely maintain a range-bound or sideways trend for a long time. As for the infrastructure sector, in addition to the influence of market sentiment and changes in industry fundamentals, I think the performance of the entire real estate industry chain-related stocks in the Hong Kong stock market is also very important. The reason why the infrastructure sector is so strong at present, with new hot stocks constantly emerging and active speculative funds continuously supporting it at high levels, is because the performance of real estate industry chain-related stocks in the Hong Kong stock market has continued to exceed expectations and continue to rise sharply."

In fact, the decline in sentiment and technical factors will only occur when the large-scale infrastructure construction project is completed.

Just keep an eye on the stock performance of related companies across the entire real estate industry chain in the Hong Kong stock market.

I feel that the major institutional investors in mainland China are still a long way behind the smart money in the Hong Kong stock market in terms of investment acumen and the ability to predict changes in industry fundamentals.

As for the two main lines of the new energy industry chain and consumer electronics...

Despite policy support, the new energy industry chain has not seen a surge in demand or a substantial fundamental reversal.

Therefore, I think that for this line to strengthen, it needs continuous positive news. It's highly likely that the trend and sentiment fluctuations along this line will be more pronounced.

The consumer electronics sector seems to be following the logic of consumption recovery and large-scale consumption, rather than the logic of technological self-reliance and technological innovation.

After all, looking at the market as a whole...

Within the main technology theme, apart from the consumer electronics sub-theme.

Other related sectors are currently performing terribly, lacking any sustainability or speculative enthusiasm.

In fact, besides the major infrastructure sector, there is currently a resonance of fundamentals, sentiment, and technical factors.

There is also such a situation in the consumer sector.

In fact, the underlying logic reversal of the consumer sector came even earlier than that of the infrastructure sector.

This occurred roughly after the three stock market crashes at the beginning of the year.

Major domestic institutions and groups have begun to band together along the main theme of consumerism.

Therefore, although this sector has been somewhat overshadowed by the infrastructure sector in the past month or two, and has absorbed some funds, I think that from a medium- to long-term perspective, the consumer sector will most likely continue to advance in tandem with the infrastructure sector, becoming another engine driving the overall market development.

Given these two main themes, a significant amount of institutional funds have already accumulated in the previous price movements.

I think the market should continue to revolve around these two main themes.

Of course, while I remain optimistic about the long-term prospects of these two main themes, given the current market volume and the inability to escape the zero-sum game, it's unwise to chase high prices. We must patiently wait for some target stocks in these two core sectors to experience a decent pullback before making a decisive entry.

"I basically agree with Lao Chen's analysis," Liao Guoxiang continued. "Currently, in the entire market, the only sectors that have a certain degree of initiative, have accumulated a large number of major institutional funds, have a medium- to long-term investment logic, and can stimulate bullish sentiment in the market are indeed the two main themes of large-scale consumption and large-scale infrastructure."

"What about the financial sector?" Li Jinshi asked. "Is there any hope for it?"

Liao Guoxiang said, "The financial sector is still the main area heavily invested in by the 'national team,' but the fundamental logic of this sector is not very good. After all, judging from the signals released by the central bank several times, interest rates will be on a downward trend for a long time to come. At the same time, with the decline in stock market turnover and trading volume, securities and insurance stocks will definitely not have much of a market. And the internet securities companies that were extremely overhyped in the last bull market are even more so. These stocks... can be called retail investor slaughterhouses. A huge number of retail investors are trapped in them. I estimate that it will be difficult for these stocks to accumulate and settle their shares again in three to five years, and it will be difficult for them to have a sustained upward trend."

“But I feel that East Money Information Co., Ltd.’s stock is showing signs of a bottoming-out reversal pattern,” Li Jinshi said. “Moreover, the trading volume has been gradually increasing recently, which is somewhat independent of the overall financial sector.”

Liao Guoxiang said, "East Money Information is indeed a special stock. It is because the financial sector as a whole is weakening that it can stand out and strengthen on its own. This is due to a reversal in the fundamentals of the stock. Its performance has continued to grow even as the fundamentals of the entire industry decline. Moreover, there is still plenty of room for imagination and expectation in the future. In this market, there will always be one or two stocks in many weak sectors that can stand out and overcome the bull and bear market conditions in the industry fundamentals."

However, the relative risk of investing in and operating these types of stocks is still relatively high compared to core stocks in high-growth industries where the fundamentals have generally turned around.

In other words, select stocks in industries that are on an upward trend.

The probability of picking the right stock is always higher than the probability of picking a stock in a declining industry.

Moreover, in an upward industry cycle, even if you choose the wrong stock, the probability of its passive rise is high given the gradually improving industry fundamentals and rising valuations across the entire industry. In other words, even if you choose the wrong stock, it's not easy to lose money. However, in a downward industry cycle, even if you choose the right stock and its performance and prospects are gradually improving, there can be situations where the industry fundamentals continue to deteriorate, suppressing the overall industry valuation, resulting in earnings growth but the stock price not rising.

"Old Liao, the situation you described is not uncommon in the market," Chen Guiyun said with a smile. "Indeed, the logic of stock selection is generally top-down: first the macro environment, then the industry fundamentals, and then the company's own performance and the determination of its own fundamental logic. If you select stocks from the bottom up, the probability of making a profit is indeed not high. It's like panning for gold in sand or panning for gold in a gold mine."

Although there may be gold in the sand, the probability of finding it is very small.

The probability of success is much higher when panning for gold in a gold mine.

I believe that since the market has already selected the two main themes of large-scale consumption and large-scale infrastructure, these two core themes have become the core engines of the current market trend.

Therefore, we must respect the market and respect trends.

We need to find opportunities in these two main sectors and select worthwhile leading stocks.

As for when the trend will end, nobody knows. All we can say is that while the trend is still going, we should try our best to follow it.

After speaking, Chen Guiyun turned his attention back to the trading screens of the two stock exchanges.

By this time, the market trading hours had already entered past 2 PM.

Benefiting from the continued rise of the major infrastructure theme, as well as the strong performance of sectors such as liquor, white goods, retail, and beverages and food in the consumer sector, the Shanghai Composite Index stabilized near the flat line. However, the Shenzhen Component Index, the ChiNext Index, and a number of sectors that are biased towards the technology theme or those that are less popular with major funds, after a brief rebound, have slowly fallen back to their intraday lows.

And among them...

Several noteworthy stocks, such as Shuguang Shares, have already slipped back to a 1.2% gain after a brief rebound, a drop of nearly 9 points from their intraday limit-up position. Judging from their chart pattern and real-time trading volume, they appear poised to turn negative at any time as trading continues. (End of Chapter)