[Red Envelope] Reversing to pick up people or hitting people? View disagreements correctly, don't panic

Short-term trading is an art. It uses the ever-changing market as a canvas, sharp insight as a brush, and decisive execution as the pigment. True masterpieces are not born from chasing random fluctuations, but from precisely capturing and resonating with the market’s core “strength”—drawing directions at emotional peaks, structuring during sector rotations, and ultimately adding the finishing touch at the moment individual stocks lead the rally. ————Reinvestment Artist [Taogu Ba]

Artist’s Meal Hall Review:

Yesterday’s index was pulled up from below water, I believe many people felt they were about to miss the boat again, so they chose to jump in at the end. I explicitly mentioned before, be cautious of this accelerated rise; if you must jump in, do so with caution, fearing to miss out. Once the index starts to accelerate and squeeze higher, the trend might really be coming to an end, so there’s no need to rush to chase highs. Instead, low buying during divergence is relatively safer. A big drop in one day shouldn’t be immediately seen as the start of a retreat. The first major divergence during an upward process should be viewed as a healthy adjustment. If continuous losses occur, then it’s still possible to see a retreat later. Moreover, within the rhythm of the index itself, a major divergence is needed to realize profits and exchange chips. The overall market should still focus on the tech sector as the main line—invest money in the main line. If you can’t make money within the main line, why should anyone believe you can profit from those rotating themes? Similarly, a major divergence adjustment can better test the strength and resilience of sectors, revealing which stocks are truly core, anti-drop, and capable of leading the way—those that can withstand declines often become proactive leaders and the main rally targets later.

Looking solely at the index, today’s large bearish candle engulfing the bullish is indeed ugly, but at this position, a rebound is possible since a mid-term pivot has been established earlier. Although the afternoon attempt to recover failed, which partly overshadows tomorrow’s expectations, be cautious of quant funds directly grabbing chips during the opening auction. Today’s big drop, as expected, should have been postponed to tomorrow, and large funds or quant traders may have taken the lead. There’s a high chance the index will recover tomorrow, but the strength of the recovery shouldn’t be too high. If the rebound isn’t strong enough, it’s wise to quickly do T+0 trades at the top, maintaining patience. Those interested in entering should focus on core stocks that have already shown continuous divergence—relatively safer.

Market Analysis Today:

From the index perspective, the performance of the external market isn’t actually very bad. Our side directly chose to preempt divergence. After a vigorous rally yesterday, sentiment soared, and the morning session continued this mood with a gap up. All directions immediately chose to cash out at the open, action was very consistent, so this was clearly an active divergence adjustment. During the session, funds tried to support, but couldn’t hold, and by the close, panic selling emerged. From the volume perspective, the total market volume was 8B yuan, up 3.77% from yesterday’s 322 billion, with clear signs of profit-taking. The afternoon rally lacked sufficient volume support.

From the sentiment view, there were 54 stocks hitting the daily limit up, 17 hitting the limit down, 1,010 stocks rising, and 4,115 stocks falling. Yesterday’s limit-up stocks had an average gain of 0.22% today. Overall, sentiment shifted sharply from high enthusiasm yesterday to a complete freeze today.

Artist’s Sector Talk:

1. AI Hardware
   Today, the biggest divergence was in PCB stocks, followed by fiber optics, with CPO performing relatively better. Since last year, Zhongji Xuchuang and XinYi Sheng have undoubtedly been the core of the market throughout the cycle, especially Zhongji Xuchuang, which was even pulled from below water to red in the afternoon. The long-term core, Longfei Fiber, also rallied to red in the afternoon but fell back due to selling pressure. On the PCB side, Dongshan Precision is slightly weaker than the previous two. These high-level core stocks, with small dips or staying in the red, show resilience since they haven’t retreated outright at high levels. This is good news—being able to continue resisting market divergence at high levels without a correction indicates strength. The rhythm is unpredictable, and it’s possible to continue holding onto the group, or to choose a pullback, which is very reasonable. Those who believe early have already taken profits and are betting on the later trend. Those who believe now need to bear greater risk. It’s better to wait until divergence plays out fully before considering re-entry. As long as Zhongji Xuchuang remains intact, there’s an expectation of sequential new highs in optical modules.

2. Computing Power
   In terms of computing power, it somewhat follows the external trend. When the external market is good, computing stocks perform well; when the external market is weaker, they lag. Like AI hardware, core stocks such as Tongtong Electronics, Hongjing Technology, and Runze Technology are relatively resilient, which is a positive sign for the sector. As long as the core remains intact, the banner continues to fly. Overall, as a branch of tech, computing power has performed very well in this rally. Whether it maintains oscillation or pulls back later, the core sector will likely perform better. Keep an eye on whether computing power can start to actively attack; if it does, it could lead a new wave of market movement. Compared to AI hardware, the core position of computing power is also relatively high but not as high as AI hardware. There’s potential for active movement and leadership, and I remain optimistic about long-term leasing of computing power, including AIDC directions. In the short term, follow the market rhythm.

3. Chips
   Today, the core chip stocks performed well, such as Zhaosheng Micro and Lanku Technology. Zhaosheng Micro focuses on RF chips, which many may not understand. In communications, our RF chips are heavily restricted by the US. For example, ZTE used to mainly use TI RF chips. RF chips are crucial in communication systems. Whether or not the US agrees to let us purchase chips from Old Huang, the overall domestic ecosystem is trending toward improvement, and domestic substitution remains promising. Keep an eye on when China Great Wall can stop falling and whether core stocks like Cambrian can adjust sufficiently. For individual stocks, focus on core industry leaders, which requires effort, or stick with stocks that haven’t broken the trend, mainly those staying above the 5-day moving average.

4. Commercial Aerospace
   Today was a day of crashes for all space-related stocks. China Satellite’s tail section was directly hit with a limit down, Shenjian Co., and Xinwei Communications also fell nearly 10%. Although Zhuque II’s launch was successful, the overall index environment was poor, and the sector immediately started to cash out on the good news. Funds have been lurking for a long time, and the sector’s gains have been substantial. This teaches us: “Buy before expectations, sell when facts arrive.” The commercial aerospace sector is still a theme of market rotation, not a main line, so its ability to resist declines is limited. It’s mainly driven by sentiment; in a market crash, sentiment can turn panicky, leading to stampedes. When participating in rotation themes, manage positions carefully. Most core stocks have already broken support levels. It’s not recommended to bottom fish immediately; wait until the sector stabilizes before considering entry.

5. Power Sector
   Yesterday, the power sector was relatively uniform, and during the tech rebound, its strength didn’t weaken significantly, indicating it’s not just seen as a safe haven. More likely, it’s driven by core stocks like Huaneng LiaoNeng and Huaneng Energy, which kept hitting new highs. Funds see the core’s earning effects and buy low to chase gains. Today, during the tech divergence, power stocks didn’t stand out; they are not completely opposed to tech but are more a part of market rotation themes. When the market is weak overall, they tend to weaken too. Many stocks opened with profit-taking today, especially those bought yesterday. If you were a bit slow, you’d inevitably face losses. The previously strong stocks like Huaneng LiaoNeng and Datang Power didn’t lead the sector to strength; yesterday’s overall strength was somewhat forced. The core stocks at high levels, like Huaneng LiaoNeng and Datang Power, are waiting for signs of stabilization.

Every morning, there are updates on news and core stock picks. Follow the Artist, stay on track, avoid getting lost. The morning content is mostly my analysis of expected sectors! Please like the posts, and you can also tip with points or cheer!

We’ve heard too many big principles and market theories. Many still don’t know how to implement them. So I share my “Strength Pyramid System,” which can bring growth to you and is worth your serious attention. Those who always want to get something for nothing will only stay on the surface of trading. The original intention is to help those who follow this post not to be confused. But the market will evolve, and so will our “Strength Pyramid” system. In the future, as market conditions change, I will add new “dimensions” to it to better adapt to different market cycles.