The Essence of the Market—Capital Flow (Practical Notes)

Today, let’s wrap up last week’s market performance, and also look ahead to next week. Every time you summarize, and every time an opportunity arrives, you can seize it faster; and when risks come, you can also avoid them faster. At the same time, let’s talk about the market’s essence—capital flows—and I hope it helps everyone.

I. Last week’s market recap

Overall, last week’s market first fell and then rebounded. From Monday to Wednesday, the technology sector kept getting sold off, which also dragged the broader market index down day by day. On the trading screen, only a very small number of stocks—for example, Baihehua—were seeing coordinated accumulation of capital, so from Monday to Wednesday last week, I kept reminding everyone to watch out and avoid risks. On Thursday’s late close, technology sub-sectors such as semiconductors, components, glass fiber, etc., all rebounded and repaired, leading the broader market index to stop the decline and recover. On Friday’s early session, sectors like healthcare/medications and robotics rotated into strength. By the late close, the commercial aerospace sector, boosted by positive news, saw a collective limit-up, which also caused semiconductors to continue realizing gains. Whether it was front-runners like Huatianke, Changdian Keji, Baoding Keji, or even the back-runners, they continued to “sell and reject” and drop further.

Overall, it was a week where the first half was dominated by ongoing sell-offs in technology, and the second half saw stabilization and recovery in the technology sector. Last Thursday, the technology sector had a collective oversold rebound that drove the broader index finally to stop falling. As for Friday, technology continued to sell off further mainly because after the rebound came profit-taking. You can think of the technology sector as having formed a “stop-the-fall” condition. As long as technology doesn’t keep dropping and the index doesn’t keep dropping, over the following few weeks there’s a high probability of a new round of market action.

Although last week’s market wasn’t great, it was still a steady upward week overall. The main reason is that before Wednesday, we kept avoiding risks consistently; only in the second half did we start participating more actively. The key is that everyone needs to get the rhythm right every week. Get the rhythm right like riding the wind and breaking through waves; get it wrong like going upstream against the current. Making big profits and small losses in each cycle is compound returns. Getting big gains every day is impossible. Like last week’s situation—the first half was about avoiding risks.

Looking at Huatianke, which we observed from low levels above on Thursday last week—our watch was canceled at the close of the day. Also, Tianshan Electronics and Leading Shares, which we observed—were canceled after the open showed strength. On Friday, we started a new low-level watch on Jingzhi Zhinong. The main logic is a breakout of a base/platform, and the trend has strengthened; next week it will most likely continue to beat expectations. Also wishing everyone next week continues to catch the rhythm—accounts at new highs—666.

II. Next week’s market outlook

On Friday afternoon last week, because the aerospace direction succeeded in capital return—an epic-level big positive catalyst—the commercial aerospace sector surged by five percentage points. China Satellite Communications, China Satellite, Zhongtian Rockets, Aerospace Universe, Jinli Huadian, Shijian Shares, Aerospace Development, Xingyuangda, Aerospace Power, Zhongtian Rockets, Julili Jushu, etc. all hit limit-up. A collective limit-up in commercial aerospace was the final straw that crushed the technology direction. Normally, the technology sector should at least rebound for two or three days, but this big positive news in commercial aerospace directly caused capital to rush to cash out from technology. Even Huatianke, the front-most name, ended up exploding and failing on the board.

Because the amount of capital within the market is limited, and the sustained sell-off in technology has already reached its end. We’re now at a switch-over node between the old and new cycles. If commercial aerospace doesn’t show strength, then technology will most likely keep strengthening. But this time, the commercial aerospace catalyst is an epic-level one—success in capital return is milestone news—so capital has collectively abandoned the old-cycle technology direction and embraced the commercial aerospace direction. Next week, commercial aerospace is expected to take over the role of technology and break out into a new cycle.

So next week, capital is more likely to focus instead. We should see a round of commercial aerospace market action. Actively participate next week. The worst situation has already passed—next week, actively try out the new cycle.

III. The essence of the market—capital flow

In the comments section, many friends asked why this blogger can always nail the rhythm in every market move. Today, I’ll mainly talk about the essence of the market—capital flows. The secret to nailing the rhythm is right in capital flow. You can revisit and review it repeatedly.

The market is a policy-driven market; at the end of the day, it’s capital flow. New investors enter the stock market and look at indicators and listen to news, but those are useless—they’re lagging. Later, you study the emotion cycle: the low-level trial period, the primary advance period, the high-level consolidation period, the primary decline period. But those are only surface phenomena. In the end, the market’s true essence is capital flow.

In each big cycle, sectors that can keep strengthening for one to two months can only be sustained for three to five days in a small cycle. Unordered rotation cycles can only support the move for one day or half a day. Ultimately, it comes down to differences in how long and how much capital keeps flowing in.

Just like the technology sector that kept strengthening in the past few months. Because of the mapping effect from overseas stock markets, tech sectors in the US and Korea saw nonstop daily rallies, which stimulated A-share capital to flow into semiconductors, components, and glass fiber. Then when overseas markets corrected, A-shares followed with a correction. Behind it all are continuous inflows and outflows of capital—plus even longer-term things like the 2024 M&A and restructuring cycle, and the 2025 cross-strait market theme. All of them are driven by sustained capital inflows into those directions.

During the primary advance period, capital keeps flowing in. During high-level consolidation, some capital quietly flows out. During the primary decline, capital rushes to exit. Then we enter another low-level trial period, where capital starts testing with lighter positions.

Behind the evolution of every market cycle is actually capital movement. Since this is the fundamental law of market behavior, understanding it is what matters most. Once you grasp the规律 of capital flows, you won’t keep watching with oversized positions when there’s no main decline phase; you won’t be timid during the primary advance; and you won’t go into low-level tracking after a sustained crash.

That’s a simple summary of the fundamental capital-flow logic. Next, let’s talk about how to apply it. Learning it so you can use it is the most important part.

The first step definitely can’t be without review (replay/recap). Because each review helps you understand the current market: what cycle the market is in, what theme is the main line, and roughly predict how tomorrow will likely move. For example, right now, technology was in a “stop falling and repair” state last Thursday, and on Friday the big commercial aerospace catalyst captured the liquidity of technology. The market is now at a handover node between the old and new cycles: the old-cycle technology is stabilizing and repairing, and at the same time a new commercial aerospace theme is coming up. This is where you can try the new direction. If next Monday, after the weekend fermentation, commercial aerospace continues to strengthen, then you can focus on commercial aerospace for a few days. Because this time is an epic-level catalyst, it’s highly likely to run for a round; the probability that it turns into just a one-day trip is not high.

Review each day to see where the mainstream themes are, and which stage the cycle is at. This can serve as reference for your decisions. For instance, during the primary advance period, if the internal ladder of a sector is complete—there is a leader, a group of “main force” stocks, and a large number of back-runners—this is the best time. Like the recent period when we kept focusing on technology as the main line: core leaders such as Fenghua High-Tech and Jin’an Guoji. Because of the sector support, the core stocks keep strengthening day after day.

Or take last Monday to last Wednesday: when capital kept flowing out of the big technology theme, the technology sector kept dropping day after day, and there weren’t especially favorable news triggers in other directions. In that situation, going to cash and resting is usually the best choice. Before every decision, consider the current environment, the cycle node, and then participate—often you’ll get it with half the effort.

The second step is watching the market. What should you watch? Personally, I mainly look at whether the next-day follow-through matches the expectations from the previous day. If the next day moves according to expectations, then actively participate. If the opening shows all sorts of disappointments—then you need to respect the tape and wait patiently.

That’s about it for now. The above can be called the core of the core, because it’s the market’s most fundamental law. You can’t see it, you can’t touch it—you need to sincerely feel it, summarize it, and then you can use it in practice. If you understand this article, I believe everyone will make big improvements. You can also comment in the comment section about what you’ve learned.

Also, next week’s approach has been updated. Wishing everyone next week continues to catch the rhythm and reaches new highs—666. And as the saying goes, July is a month for doubling. Wish everyone’s account doubles.

Like, support, and give rewards—everything you do supports this blogger. Thanks to everyone’s strong support, it’s the continuous driving force for updates. Wishing everyone gets better and better. Make big money again tomorrow—666.