Sector rotation, controlling positions, and locking in profits!

The overall market shrank its volume last Friday to less than 1.7 trillion yuan. Previously, I said that whether the market is falling or moving sideways in consolidation, it’s one of the main forces’ playbook tactics for washing out positions. This shrinking volume this time also indicates that whether the panic-sellers’ positions or the blood-soaked chips have been washed out to a relatively very thorough degree. Shrinking volume to the extreme simply means there are no more chips that will come out. In this market, the only shrinking volume won’t deceive us.

The slow bull trend remains unchanged. So whether conflict in the Middle East continues or peace talks continue—so long as no nuclear event occurs—there will be no systemic risk for us in A-shares.

Combined with the current trend in overseas markets, and given that A-shares are currently in a slow bull trend, the overall market will most likely continue to trade sideways and consolidate in the 3850–3950 range.

Tomorrow, Tuesday, at the open, it’s likely to gap down and then rise. Sector rotation will be relatively fast. During the sideways consolidation period, you should still pay attention to selling into strength and buying on dips, and do not get greedy.

Sector analysis:

Storage chips: the most powerful price-increase logic within the “big technology” theme. In the second quarter, Samsung and SK hynix will continue to raise storage chip prices by more than 50% again, and the market has been in a constant shortage.

Many institutions also believe that storage chips have shifted from a cyclical industry to a growth-oriented industry. I’ve been bullish on this sector. Combined with today’s Monday, the U.S. stock storage-chip sector continues to rise, and Seagate Technology breaks to new highs. But you also need to pay attention to selling into strength and buying on dips; sector rotation—don’t get greedy. The fourth quarter is a period of dense earnings disclosures, and capital will also choose sectors with high profit growth during this phase.

Global AI data centers are already being built on a large scale. China’s AI large-model usage volume has already surpassed the 140 trillion level. Behind these 140 trillion units of data, it means AI has become like water and electricity—an indispensable basic infrastructure in our production and daily life. And currently, the scarcest hardware for AI is storage chips, with no exception. Moreover, the shortage situation will continue through 2028, and second-tier products are still continuously rising in price, with the minimum increase rate starting from 50%.

Micro LED (micro light-emitting diodes): is a technology seen as the “next mainstream display technology” after LCD and OLED. It makes the LED structure thin-film, miniaturized, and arrayed—each pixel can emit light independently. Simply put, you can think of it as a screen made of countless “grains of light” (micron-level LED chips) that are thinner than strands of hair. Each “grain of sand” is a pixel with an independent switch and independent light emission. This technology is not only reshaping our visual experience; in the current moment of an AI computing-power boom, it has become a key role in solving the bottleneck of high-speed data transmission.

1. In the future, it will be widely used in display screens, high-end commercial large screens, smart wearables, AR/VR devices, and in-vehicle displays.
2. The “optical communication express” for AI computing power: besides display, Micro LED also shows disruptive potential in the field of optical communication—especially for high-speed interconnects inside AI data centers. Solving the “optical vs. copper” dilemma: traditional copper cabling has short transmission distances, and traditional optical modules have high power consumption. Micro LED optical modules, leveraging their innovative “wide and slow” (WaS) architecture, achieve all three at once: long-distance transmission, low power consumption, and high reliability. Suitable for a glass substrate (another approach to replace CPO packaging). Currently, Micro LED optical communication solutions are mainly applicable to short-distance interconnects within 50 meters—such as connections between AI server racks inside a cabinet or between adjacent racks’ GPU clusters—to meet ultra-high-rate demands of 1.6T/3.2T and above.
3. The whole sector already exploded once in a small climax early on, and it may also be one of the directions for hot-spot speculation—just speculating on expectations.

Pharmaceuticals: the sector still has the height for consecutive limit-up leaders, but the sector saw severe sector rotation and splitting last Friday; going forward, we still expect it to keep seeing rotation and differentiation.

Electric power: it still needs to keep consolidating; there will likely be a second wave around June.

Commercial aerospace: after early May, we’ll see whether it continues to push forward based on the situation.

Humanoid robots: for now, it still requires patience and waiting.