Ying Jianzhong: After filling the gap, why is the Shanghai Composite Index stuck at this level?

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■ Ying Jianzhong

Last Monday, after a long downward shadow, the Shanghai Composite Index entered a correction phase. The first step needed was to fill the large gap between 3906 points and 3955 points above. Fortunately, this Wednesday, bulls used the momentum of global stock markets rising to completely fill this gap. Interestingly, the bulls’ attack stopped abruptly at 3955.94 points, right at this level. What does this indicate? It shows that the market is being controlled by an invisible hand.

Time flies. This year, trading in A-shares has already covered a quarter of the journey. In the just-passed first quarter, the Shanghai Composite Index opened higher and higher all the way. However, just as the bull market enthusiasm was igniting, a sharp correction at the end of the first quarter wiped out all the bullish gains, and the Shanghai Index basically returned to the starting point at the beginning of the year.

Currently, the Shanghai Composite Index is not far from its opening level of 3,986 points this year. In the capital market, there are bull markets that have been continuously rising for many years, such as indexes reaching new highs and surpassing tens of thousands of points, which looks very exciting. There is also another kind of bull market: rising, falling back, rising again, falling again… with ups and downs, repeatedly resetting, but with the bottoms rising each time and the tops gradually increasing. If investors can keep the rhythm in such a market, returns won’t be bad. If the rhythm is off, losses can be severe, and it can also easily disturb investor sentiment. This wave of the A-share bull market seems somewhat similar to this.

Since the beginning of this year, the lowest point of the Shanghai Index was 3,794 points, which is much higher than last year’s bottom of 3,040 points. Both points occurred during the “9.24” bull market process. After a long downward shadow last Monday, the Shanghai Index entered a correction phase. The first step was to fill the large gap between 3906 points and 3955 points above. If this gap cannot be filled, the daily K-line will form an island shape. Fortunately, this Wednesday, bulls used the global stock market rally to fill this gap completely. Interestingly, the attack stopped abruptly at 3955.94 points, right at this level. What does this indicate? It shows that the market is being controlled by an invisible hand.

The author believes that the correction of the Shanghai Index still requires time, so that time can be exchanged for space. After filling the large gap, the next target is to recover the half-year moving average. After this week’s close, the Shanghai Index’s half-year moving average is around 3,990 points, close to this year’s opening level. Next, investors can focus on the following two points.

First, pay attention to the annual reports of listed companies. By the end of April, the annual reports should be published. These reports not only reflect changes in the performance of listed companies but also provide insights into the main forces’ movements through changes in the top ten shareholders, dividend returns, and share capital expansion plans. This information is very valuable for stock selection.

Second, focus on the movements of leading companies on the STAR Market. Currently, the STAR Market is a key area for IPOs. Cambrian from the “-U” unprofitable label to removal of the label, from initial fundraising through IPO to subsequent high-priced refinancing, and plans to use reserves to cover losses—such series of operations may become a development model for growth companies on the STAR Market, worth paying attention to. Last year, Cambrian’s private placement was priced at 1,195.02 yuan, with all participants being financial institutions. On April 16 this year, its additional shares will be unlocked. As a leading company on the STAR Market, how Cambrian’s stock price will fluctuate at this point is worth watching.

The Shanghai Index has entered a wide-range oscillation channel, with the upper boundary at the half-year moving average and the lower boundary at the annual moving average. Currently, the index is closer to the upper half-year line, still a bit away from the lower annual line at 3,747 points. But two trends should be noted: one is that the annual line is rising at a pace of 2 points per day; the other is that the distance between the half-year and annual lines will gradually narrow. How they will ultimately break through remains to be seen over time.

The author believes that since the “9.24” bull market is advancing in this manner, the best trading strategy is to follow the market’s rhythm, move with the index, and profit from swing trades.

Editor | Li Li

Review | Yuan Gang