Rebirth of the Capital Legend

"50 lots of sell orders hit the daily limit down at the open, that's pretty aggressive." Seeing LeEco's stock open at the daily limit down and with very few buyers actively trying to buy on the dip, Xu Qiao, a member of the "Shanghai Short-Term Trading Group," observed the changes in the two stock markets and said, "Originally, I was thinking of taking advantage of the low sentiment in the entire technology sector when LeEco opened at the daily limit down to buy on the dip and make a profit from the oversold rebound. But now, judging from this situation, it seems that the entire internet and technology sector related to LeEco has completely collapsed today, and it's unlikely to follow the path of opening lower and then rebounding to recover."

"The fact that LeTV's stock opened at the daily limit down today was somewhat expected," Old Zhang in the group chimed in after hearing Xu Qiao's words. "But the massive number of sell orders at the start of trading was unexpected. This indicates that almost all investors who were previously trapped in this stock have lost confidence, and it also shows that the entire internet and technology sector has reached the point where panic selling is beginning, which means it has entered the main downward phase. I estimate that after this extreme emotional reaction, this sector will have bottomed out."

Old Wu nodded and said, "Old Zhang is right. I think the technology sector has almost bottomed out after this major drop. After all, the market's expectations for the future of this sector are already pessimistic enough. And with stock prices generally falling by 60%, even if there are further negative factors, their impact will be very limited."

However, what I'm more worried about now is...

The overly pessimistic expectations surrounding the internet and technology sectors may spread to the previously strong infrastructure sector, as well as other sectors in the market.

If the sentiment spreads, market expectations will shift.

This is compounded by the already insufficient market liquidity.

Without sufficient new funds entering the market, the current market trend is unlikely to be sustained.

Not to mention, after a recent surge in the infrastructure sector, the number of investors holding profitable positions is actually quite substantial.

These profit-taking pressures, coupled with a general decline in sentiment and lowered expectations, created a downward pressure on prices.

Therefore, once the trend enters a correction phase, it's highly likely it won't stop, and the magnitude and extent of the correction will likely be substantial.

"Although LeTV is the top-weighted stock in the ChiNext index, its overall influence on the market is relatively small at this time. I don't think the panic selling caused by its limit-down opening will spread to other industry sectors and main market themes that have very little correlation with it," Lao Zhang added. "At most, the film and television media, internet software, and internet application sectors will be affected to some extent, but other main sectors will likely continue on their usual course."

"Looking at the current market performance, the infrastructure sector, along with yesterday's well-performing new energy industry chain, coal, non-ferrous metals, and steel sectors, haven't been significantly affected," Xu Qiao continued, her eyes still fixed on the market movements. "Moreover, it seems that after the film and television media, internet software, and internet applications sectors weakened, the infrastructure, new energy industry chain, steel, coal, and non-ferrous metals sectors have actually become stronger. According to the original market expectations, these sectors shouldn't have opened higher today, but look at them now... a host of popular concept stocks in these sectors have generally opened higher to varying degrees."

"Yes, judging from the current market pattern, it seems that's indeed the case," Old Zhang said. "The general expectation for Beijiang Jiaojian stock before the market opened was that it would open significantly lower, but judging from the current situation... this stock will most likely open higher, which is somewhat unexpected."

Hearing the discussion, Brother Chen chuckled and replied, "It's not surprising. The weaker the main theme of the market is in the broader technology sector, the faster the funds concentrated in sectors like film and television media, internet software, and internet applications will flee, flowing into defensive sectors with stronger profit-making potential or certain hedging attributes."

The large-scale infrastructure sector has seen high expectations and consistent profitability recently.

In addition, the surge in Hong Kong stock market prices of a number of mainland property stocks and core leading stocks in the real estate industry chain has further fueled the rally.

This trendline has become the core trendline with the strongest stability and high risk-averse attributes among the two stock markets.

Therefore, it is quite reasonable for various funds to continue to converge on the major infrastructure sector when other market themes and sectors are experiencing rapidly amplified losses or are hit by major negative factors.

As for the new energy industry chain, and the generally higher opening prices of sectors such as coal, non-ferrous metals, and steel in the early stages of the opening auction in both markets, this is a continuation of yesterday's market trend and an influence from short-term speculative sentiment. However, in terms of certainty, and for many major funds that are adjusting their positions in the market, this is still uncertain.

The main industrial chains such as coal, non-ferrous metals, steel, and new energy are still significantly less important than the large-scale infrastructure sector.

In summary...

In the broader technology sector, especially in film and television media, internet software, and internet applications, after a prolonged and gradual decline, the sector was already at a relatively low level. Therefore, we should not be overly pessimistic about this sudden negative impact.

The sectors include film and television media, internet software, and internet applications.

At the current position, although there is a heavy amount of trapped capital, there are actually not many floating shares.

Many investors who entered these main themes early on are already trapped. For these investors, it would be pointless to cut their losses at this point.

Therefore, the panic selling pressure at this current level along these lines is not expected to be significant.

The potential number of shares to be sold will not be very large.

This means that with negative news looming, these weak leading sectors, which have already fully released their valuation bubbles and downside risks, have very little potential room for further decline given the already pessimistic expectations. So... there's no need for anyone to panic at this moment.

However, the potential for further decline is limited, and most related stocks are already at extremely low levels.

In this situation, if the panic selling is relatively thorough.

On the contrary, I believe that these weaker sectors will experience a relatively strong oversold rebound after this wave of selling pressure subsides.

"Brother Chen's analysis makes a lot of sense." Old Zhang nodded and continued, "Overall, the risk of a continued market decline is not significant. Major sectors such as infrastructure, consumer goods, finance, and petrochemicals are still being heavily invested in by institutions, and their shareholding structure is not dispersed, so there is naturally no major downward momentum. On the other hand, weaker sectors such as film and television media, internet software, and internet applications have indeed fallen to relatively low levels due to their long-term continuous decline. Although the majority of their shares are held by trapped investors, these trapped shares have been accumulated during the continuous decline, so even if there are some negative factors, there will not be a large-scale concentrated outbreak of selling at a loss."

In addition, the market is supported by the profit-making effect of local short-term market trends.

There are also positive factors in overseas markets, as well as continued guidance from the corresponding main themes in the Hong Kong stock market.

There's no reason to remain bearish at this level, even for the weaker sectors like film and media, internet software, and internet applications.

“That being said, in terms of market direction…” Old Wu said, “we should still focus on the main sectors where short-term funds are concentrated, which can generate sustained profits and build market sentiment toward bullishness, right?” Brother Chen nodded and replied, “That’s natural. In terms of the sustainability of the main sector, the ‘major infrastructure’ sector is still the strongest, and the corresponding stocks have the most complete tiers.”

"If Beijiang Jiaojian opens high and continues to rise today, expanding its upward potential..." Xu Qiao said, "it should be a positive for other stocks in the entire major infrastructure sector, as well as a host of popular concept stocks in various tiers, and should generate a positive sentiment."

Old Zhang smiled and said, "That's for sure. And I think Beijiang Jiaojian will most likely open high and continue to rise today. After all, judging from the initial opening auction results of this stock, its potential buying power is still very strong, and the stock price simply can't fall."

"If the stock of Beijiang Jiaojian opens higher at the end of the pre-market auction, it can quickly gather a consistent bullish sentiment," Lao Wu said. "However, at present... it is not clear whether the stock is strong or weak, after all, there are still quite a few false orders at this time."

“A high opening shouldn’t be a problem,” Xu Qiao said. “After all, stocks in the same sector, such as Taihe Shares, Tianshan Cement, and Shougang Group, as well as heavyweight leading stocks in the ‘major infrastructure’ theme, such as Conch Cement, Gemdale Group, Huaxin Building Materials, and Huaguo Construction, all opened quite well, and it doesn’t seem like there are fake buy orders supporting the market.”

"If the infrastructure sector strengthens again today..." Old Wu said, "it should attract a lot of active liquidity from the main new energy industry chain, right?"

After thinking for a moment, Brother Chen said, "It shouldn't siphon too much liquidity from the new energy industry chain. Affected by the limit-down opening of LeTV's stock, most of the funds in today's market trend should be concentrated on several popular themes with good prospects and good profit-making effects, as well as the pharmaceutical and consumer sectors with strong safe-haven attributes. I estimate that the market's 20/80 split will be relatively severe today."

"As long as the panic selling doesn't spread to the entire market, it's fine," Xu Qiao said. "As long as there are localized profit-making opportunities in the market, the market won't collapse."

Old Zhang nodded and said, "That's what I think too."

The discussion continued among several core members of the "Shanghai Short-Term Trading Group" group.

Before everyone's eyes could see, the market's trading time quickly reached 9:20 AM. After the initial call auction, both markets rapidly transitioned into the real call auction where orders could not be cancelled.

After a large number of fake orders were cancelled...

The current situation in both markets is slightly better than it was at 9:15 a.m.

The opening declines of sector indices and a number of concept stocks in the broader technology sector, such as film and television media, internet software, internet applications, and electronic information, have narrowed compared to the initial opening auction. Although these sectors still lead the decline among the two market sectors, the number of panic selling orders has decreased significantly, and the panic selling sentiment has also weakened considerably.

As for the three core sectors of the major infrastructure construction theme, they are real estate, building decoration, and building materials.

There are also sectors within the main new energy industry chain, including complete vehicles, auto parts, auto accessories, lithium batteries, and charging piles.

And the steel, coal, and non-ferrous metals sectors, which performed strongly yesterday.

At this moment, the general trend of slightly lower or flat opening prices at the initial call auction has changed to slightly higher opening prices.

Of course, this is also reflected in the fact that the performance of various popular themes and corresponding industry sectors in the market has rebounded.

LeEco, the most watched stock in the market, is still locked at the daily limit down with large sell orders and shows no signs of opening. At the same time, other stocks with strong correlation to LeEco's performance, such as All-China Education, Huawen Online, Huawen Media, Wanda Film & Television, Netspeed Technology, and Baofeng Technology, also opened significantly lower.

However, other popular stocks in the market that are not primarily related to technology.

Driven by the generally higher opening prices of stocks such as Tinci Materials, Penghui Energy, Pingmei Energy, Beijiang Jiaojian, Taihe Shares, and Tianshan Cement, they all showed a relatively positive bullish trend.

And from the changes in the stock price movements of these popular concept stocks that are not primarily technology-related.

It can be seen that the main funds in the market are still flowing out significantly from small and micro-cap concept stocks, and then quickly converging on the main sectors with relatively clear profit-making effects, such as large-scale infrastructure, new energy industry chain, large consumption, steel, coal, non-ferrous metals, and petrochemicals.

“That’s right, that’s much more normal.” Noticing the changes in market trends after 9:20 AM, He Chong chuckled in the Suzhou-based group of major speculative investors and said, “I told you that LeTV’s stock wouldn’t have such a big impact on the market. Sure enough, apart from the already weak sectors like film and television media, internet software, and internet applications being affected to some extent, the other main sectors are basically still developing along their original trends.”

“It seems that everyone was indeed overly worried before the market opened.” Zheng Jinming responded after hearing He Zhong’s words. “There is still a local profit-making effect in the market, and it is stimulated by the continuous record highs in overseas markets. I estimate that the limit down of LeTV’s stock will at most affect the pre-market and early-market sentiment. As the market continues to trade, the impact of this stock will only weaken.”

"It seems that the unexpectedly high opening of Beijiang Jiaojian, a leading stock in both Shanghai and Shenzhen stock exchanges, stimulated short-term market sentiment and offset most of the impact of LeTV's limit-down. This allowed the market's bullish sentiment to recover slightly after the actual opening auction began," Lao Qian in the group responded. "Since the panic selling in related concept stocks in the film and television media, internet software, and internet applications sectors—which are more inclined towards the technology theme—has not spread to other main sectors, then today's market can still be viewed as a bullish opportunity."

"Yes, the opening of the stock of Beijiang Jiaojian was indeed somewhat unexpected." Zhang Xinlei nodded.

He Zhong laughed and said, "It's not just that the opening was somewhat unexpected, it's practically abnormally strong. Look... right now, the stock of Beijiang Jiaojian is still rising, and the buying power is increasing as the trading time goes on."

What does this mean? It means that market expectations for the major infrastructure investment theme are still rising.

This also demonstrates that the bullish momentum of Beijiang Jiaojian stock did not weaken even after some major speculative funds in the market took profits and exited, and it was able to continue its upward trend.

Since the leading stocks at high levels have not broken their upward trend, they can continue to expand their upward potential.

Then, the short-term speculative sentiment could rise even higher.

This point naturally wouldn't be the point where market losses amplify; in other words, it would be possible to continue manipulating the market and profit from market sentiment premiums. (End of Chapter)