Hexun Investment Advisor Li Yongxi: Margin calls leading to liquidations, rebound tomorrow!

On March 31, Hexun Investment Advisor Li Yongxi said, why did the market break below the 3,900-point level today? The reasons are worth looking into in depth. First, let’s look at a phenomenon: in the last hour today (2:00 - 3:00), the market had absolutely no resistance and saw a free-fall-style decline. However, the drop wasn’t huge. In the end, it broke below 3,900 points, and there were only 17 stocks that hit the daily price limit down today. So why did the market keep moving downward with no sign of a turnaround? Looking back at yesterday’s and the day before yesterday’s rise, as well as the two upward moves in today’s early session, it’s likely that the margin financing positions kept increasing their required collateral—adding margin—while this afternoon, notifications about increasing margin were also coming in continuously. In my view, the last hour this afternoon had absolutely no resistance because the goal was to knock out these margin-financed positions so they would get liquidated. So what effect does blowing up margin-financed positions have for us? First, the market often forms an upside “reversal/cover” move. If there is a reversal on Wednesday, it means the money that the margin-financed positions lost flows into the main players’ pockets. Even if the market rises afterward, the margin-financed positions will be hard to recover. From this, you can see that the main players’ target for harvesting today is very clear: it’s the people who are using leverage. So should we be afraid now? Actually, this current level is the bottom area. If they hadn’t liquidated the margin-financed positions today, then most likely the afternoon market would have moved upward. After they “took out” the margin-financed positions today, retail investors can get their money back when the reversal happens tomorrow, but people who increased leverage will suffer severe losses. Everyone needs to make it clear what caused the decline. Tomorrow, the market must move with volume—volume must be sufficient—and the gap has to be broken through. That’s the only choice.