May 12 Recap — To prevent the rotation of weights from starting to adjust, individual stocks are entering a knockout (elimination) stage

Simple review, [Taogu Ba]

1. Index,

Today’s volume shrank to 300 billion with a correction, the 4200-point level stopped falling intraday, overall acceptable, from an individual stock perspective, previously it was the weights leading the stocks in their respective directions to rise together, then the stock rally weight adjusted, today the individual stocks adjusted their weights to support the index, from a sector perspective, previously all sectors rose together, recently there has been rotation. When the index faces pressure, as long as it’s not all up or all down, rotation adjustments can hold the index up. For example, earlier, the light direction adjusted, semiconductors supported the index, then semiconductors adjusted, light direction supported the index; only with such alternating adjustments can the market be healthy. Otherwise, simultaneous adjustments could easily produce a large bearish candle.

From an index perspective, if the index no longer continues to rise and needs a pause, the first to adjust are ordinary stocks. Next, we should prevent some weights from short-term sequential dips, such as overseas computing power companies like Yizhongtian, or domestic ones like SMIC, Cambrian, Lianqi, Hygon, and those in computing power leasing like Xiechuang, Runze, etc. Also, pay attention to recent sentiment-driven rebounds in various sectors, such as Great Wall, Baoding, Tongding, Guangxun, Xingyun, Tongyou, Baibang, etc. If these rebound stocks directly dip again, be cautious of recent repeated adjustments. The stocks that previously surged are now short-term sell points and reduction points; after a 2-3 day pullback, consider low buying again.

Personally, if the trading volume cannot sustain 3.2-3.3 trillion, weights should rotate. From an index perspective, SMIC, Cambrian, Hygon, Lianqi represent the Sci-Tech Innovation Board, while Xinyi, Zhongji, Tianfu, Ningde represent the Growth Enterprise Market. These leading heavyweight stocks are also in the CSI 300. To prevent a sharp correction of the index, the CSI 500 should support the index in the short term. You can look for corresponding stocks in various sectors within the CSI 500, such as Tachen, Tianyue, Changchuan, Feli, Xinyuan, etc.

2. Sector trends,

It’s recommended to follow our previous classification with slight modifications:

① Technology, mainly AI computing power at present,

First category: Overseas computing power, mainly optical direction (optical modules, optical chips, CPO, optical equipment, fiber optics, other optical components, etc.);
Second category: Domestic computing power, mainly semiconductor chips (CPU, GPU, high-speed interconnect, storage chips, advanced packaging, wafer foundry, other manufacturing links, etc.);
Third category: Computing power leasing, literally leasing (training computing, edge computing, complete machine leasing, Token factories, computing electricity collaboration, etc.);
Fourth category: Computing hardware infrastructure, mainly PCB, high-speed connections, copper foil, copper-clad laminates, fiberglass, liquid cooling, etc.

② New energy,
Fifth category: Mainly lithium batteries and energy storage. Computing electricity collaboration is related to new energy but should be viewed within computing power, not as part of new energy.

③ Others, mainly thematic,
Sixth category: Commercial aerospace, robotics, thematic representatives, with dense news catalysts in May, currently not showing strong momentum, so no detailed segmentation for now;
Seventh category: Pharmaceuticals, policy + bottom resonance, also not showing strong momentum, mainly for defensive purposes during tech adjustments.

These roughly divide into three major categories and seven subcategories. The current market is rotating, so it’s important to grasp the interplay of these rotations—between major categories and within subcategories. Especially when the index is oscillating, understanding the rhythm of rotation is crucial; otherwise, one risks being caught in a trap.

For example, yesterday’s market saw a rise in tech (domestic computing power), with sideways movement in new energy and a correction in thematic stocks. Today, tech and new energy are adjusting, while pharmaceuticals are rallying. Currently, it’s undoubtedly the tech sector leading, specifically the computing power theme. Within computing power, the four categories are also rotating among themselves. Today, aside from a few heavyweight and rebound stocks, most overseas computing power, domestic computing power, and leasing are adjusting, but many hardware infrastructure stocks are rising. The thematic stocks, like commercial aerospace and robotics, are correcting today, while pharma stocks are lifting.

3. Sentiment,

In the past, sentiment was driven by retail funds, such as consecutive limit-ups, following A stocks with B stocks, laggard follow-ups, one-word directions, stronger stocks getting stronger, weak stocks turning strong, etc. Currently, these are mostly ineffective. There’s little point in analyzing them. If you rely on past short-term sentiment, you risk a big loss. Occasionally, a few stocks hit consecutive limit-ups or breakouts, but these are not meaningful enough to participate in. Better to stay out.

Today’s sentiment is more driven by institutional trend-style rebounds, which should be approached with trend-following methods.

4. Brief summary,

Index-wise, I think the problem isn’t big; even if there’s a correction, it shouldn’t be deep. A slight correction should still allow for subsequent oscillations upward. However, the short-term difficulty has increased. Today’s correction is in individual stocks, with weights supporting the index. Be cautious of upcoming weight rotations; pay attention to opportunities in the CSI 500 stocks.

Sector-wise, follow the three major categories and seven subcategories, watch for rotation between major categories, and within subcategories. If weights rotate, focus on stocks that resist divergence during the adjustment, as they have the greatest rebound potential after correction.

Sentiment-wise, ignore short-term sentiment; follow the trend with rotation-based rebounds and low buy-ins, avoid chasing the strongest stocks.

Finally, I believe today is the first day of correction. Overall, the market looks okay, but the key is to prevent the upcoming rotation of weight stocks. If the market shrinks in volume and weights rotate, many stocks that rose will dip again, and some will be淘汰. Recently, watch for opportunities to take profits at highs, and after a 2-3 day correction, consider low buying. The index’s initial target is basically achieved; the current market should be more about profit-taking gradually rather than pushing higher.