Market crash, the validation still has to come, what should I pay attention to next?

A wave of significant rally, what is the most taboo? [Taogu Ba]
It’s when doubts exist during the rise, or holding light positions, or missing the opportunity, then suddenly during a correction one realizes and adds heavily, only to find the next day the market crashes, and oneself is still at a high level using unrealistic fantasies to soothe oneself, ultimately going from small losses to big losses. This is the most serious problem for retail investors doing short-term trading. Before the day before yesterday, correction yesterday, crash today—this is the most brutal interpretation.

Because, once the trend reversal is confirmed, no matter how good the logic or how broad the industry prospects, most stocks will face at least a 10-point drop, some even dropping more than 30 points. It’s not that the stocks are bad, but that the timing is wrong. So, when doing ultra-short-term trading, once the indicators of the market and individual stocks break the support, you can’t hold onto illusions. Stop-loss is normal; this is common sense.

There is no market that only rises forever or only falls without recovery; there is only: rhythm!

For example, in the next two days, from the current perspective, after today’s crash, people’s minds will start to enter a “warning state,” indicating that confidence is beginning to weaken along with the market reversal. Therefore, future market conditions will no longer be the easy wins of the tech bull run a few days ago, but: rhythm first, structural market.

Any stock that shows a mid-day decline today, if it doesn’t rebound with a bullish candle (excluding limit-ups) and stabilize tomorrow, indicates “continued weakness.” In the short term, stop losses first—that’s discipline! Don’t indulge in weak stocks, don’t flaunt in strong ones. Remember, always be cautious about the market!

I have been warning about risks in my recent posts, feel free to review them when you have time.

“The Change in Style and the ‘Shakeout’ Challenge: What to Watch for in the Coming Days?” “Index is strong, tech is strong; but I want to say, tech is strong because of the energy crisis.” The first and latter parts of these posts.

A significant portion of the posts hints that the market is about to weaken, and we should watch for the turning point. Today is a prelude to a retreat, tomorrow and next Monday will be major confirmation points—that is, the retreat confirmation. From a minute-by-minute trading perspective, if tomorrow’s decline continues early, the early morning sell-off could be a bottom, which can be exploited for intra-day recovery.

However, if there’s an early recovery tomorrow, remember: the risk will continue to increase, so consider selling high!

Today’s index closed with a large, gap-down, blood-red candle, with increased volume. If you’re not very strong, this big decline might take a long time to digest. This means that any subsequent rally will likely be met with “trust issues and lack of confidence,” leading to a quick exit. Based on human nature, future market movements will be difficult!

We can consider several possible scenarios:

1. If tomorrow opens high, that stock is likely just a false rally, taking small profits and selling, with everyone rushing to exit, leading to a high open, rally, then a decline.

2. If tomorrow drops sharply, once it hits a certain level, quantitative arbitrage funds will start to buy the dip intraday, causing a brief rally, then another wave of selling pressure.

3. If it crashes at the open, continuing to sell off with a gap down and low opening.

4. If it opens high and moves higher, engulfing the previous decline with a large volume bullish candle—this is very unlikely.

5. Small gap-up or gap-down, then weak oscillation throughout the day, with sector rotation happening multiple times.

Which of these five scenarios do you think is most likely?

If we can’t get an accurate answer, the simplest approach is: for those with positions, be cautious during the rally! That’s basic common sense. If you choose to lie flat, then that’s another matter.

Back to trading basics, some fundamental principles still need to be mentioned:

Market conditions have reached a point where fantasizing about a bull market may no longer be suitable. Institutional players are likely to exit, and emotional streaks may be reversed. Since the market and indices are uncertain, tomorrow’s move will likely be driven by sentiment first, or individual stocks leading the way. But because of lack of confidence, any stocks with shrinking volume and hitting the limit down are unlikely to close without divergence. Opportunities are present all day, but avoiding tomorrow’s low-volume limit-down stocks is wise—what if they turn into a “grounder”?

Therefore, if you truly want to play the bull-bear crossing or take risks in the fire, tomorrow’s strategy should prioritize sentiment, small and mid-cap stocks, light positions for trial, trading as a secondary priority, and switching between high and low positions. If unsure, staying in cash until noon next Tuesday is the best choice.

The market seems to have grown tired of the AI rally or correction; instead, today’s strongest sector was semiconductors. Under AI, various sub-sectors like optical communications, liquid cooling, computing power, PCB, etc., are mainly individual stock plays. If AI recovers tomorrow, large-cap high-priced stocks favored by institutions will likely be the first to cash out, which could dampen sentiment. Then, all AI stocks might be viewed as high positions, with divergence in sector-wide streaks tomorrow, such as Wangke Shares, Huasheng Shares, which hit limit-up today and will see high volume turnover tomorrow. Whether they can continue to outperform is uncertain—opportunities exist all day, but missing them is also fine.

Some may say, institutions are deeply involved in the sector; yes, mid- and long-term AI is promising, with leading stocks at thousands of yuan. After all, in 10 years, it’s very possible we’ll be at the top of the world, with the Shanghai Composite slowly rising to 20k points—anything is possible. But for us ultra-short-term traders, it’s hard to withstand drops over 10 points, let alone 30!

There’s a saying: flowing water doesn’t compete for the front, it doesn’t compete for the fleeting moments, only for the prime time. At this moment, it’s better to wait.

Regarding semiconductors, I’ve always believed they are likely to absorb spillover funds from AI. If tech continues to rally, semiconductors/chips/storage chips still have a good chance to continue, because North Huachuang, Guoke Micro, and other semiconductor trends haven’t even started, so how can they be at high levels?

The power sector peaked yesterday, then differentiated today. As long as Datang Power isn’t suppressed to death, there’s a chance for a rebound. This sector could be one of the mid-term strong performers after AI hardware and semiconductors. Computing power ends with electricity, tokens end with cables.

As for style, it’s still about emotional grouping and favoring low-priced stocks.

If the external tech sector surges tomorrow, this sector might recover, such as semiconductors, network equipment, etc.—be cautious about high selling.

Due to time constraints, this post can only be updated here. If I have time later, I’ll share some individual stocks to watch for tomorrow’s market.

Personal key focus:
After choosing to abandon Datang Power following a poor performance, I’ve unfollowed it. Taiji Industrial hasn’t moved yet. In the short-term mode, if it doesn’t close with a bullish candle before noon tomorrow, it’s considered temporarily weak, so avoid uncertainty first.

Finally, I hope everyone continues to like and share prosperity.

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The more you speak and communicate, the better I can understand what issues concern you, and then share more practical insights and tips tailored for you. Let’s learn and grow together! Catch new fish!
If you want to learn about new stocks, leave a comment, and I’ll find time to analyze!

Disclaimer: The stocks mentioned above do not constitute investment advice; they are for reference only.