7.13 Pre-market thoughts, outlook for next week

Brothers, good evening![TaoGuba]

Let’s first recap what happened last week.

In the GEM Index, Eastmoney/Tonghuashun All A, and Tonghuashun Hot Stocks—among them, Thursday saw a strengthening rebound, while the rest were all in a downtrend.

As tech cools off, innovative drugs, robots, and commercial aerospace that run against the “tech” theme have been active.

I was flat for a day last Tuesday. After that, compared with the broader market, the indices showed resilience plus weakening downside momentum. We were positioning for a repair in the GEM Index, and we monitored China Shipbuilding Special Gas, Jinan Guoji, Jiyi Xuchuang, and the Semiconductor ETF.

Overall, last week’s difficulty was relatively high. In the drawdown phase, we were looking to transition in a steady way, and the overall outcome was still quite satisfactory.

Let’s talk about the approach for tomorrow:

① The GEM Index rallied and then pulled back on Friday—first, it was within expectations; second, this area is already a high-volatility range, so the probability of big red and big black candles is higher.

The week before last it was “up first then down.” Last week became “down first then up.” Although Friday had a big black candle, over the following few days it was still within a small box range.

Next week should be a bit more optimistic. The bias is for strong but choppy consolidation, and you can reference the period around mid-October last year.

② After the GEM Index’s big drop, tech is no longer the only option. Many themes have also started to heat up—super-nodes, tech overseas supply chains, commercial aerospace, innovative drugs, robots, and so on. There are many directions, so I’ll pick a few to talk about.

(1) Optical communications: It’s closely tied to the GEM Index, but slightly stronger than it. The characteristic of “light” is that when tech rebounds, it leads the first wave. Next week, if the GEM Index can shift into consolidation, optical communications can also move toward stabilization and an upward turn.

After the big drop, the safer angle is to look at oversold leaders: Jiyi Xuchuang, Xin Yisheng, and Dongshan Precision.

(2) Semiconductors: The main debate here is whether it forms a double-top or a three-wave continuation. If on Monday and Tuesday it can withstand one more round of divergence, and it can stand firm at the previous high area, then as a three-wave continuation, the probability of breaking upward afterward is higher.

For vehicles, look at ETFs such as 588200 and 588170.

(3) Domestic industrial chain: More theme-driven. On Thursday when tech surged, it performed generally. On Friday, it switched to consensus right as tech pulled back sharply. It’s still part of the tech space, but its movement is a bit similar to innovative drugs—something that goes against the “tech” attribute, so the path is a little hard to read. If later it can move in sync with other tech sectors’ tempo, and it can hold up relatively better against declines, it can form a left-side watchlist focus point—such as Inspur Information and Tsinghua Unisplendour. Let’s see whether it can close another small red-to-green/weak-down candle with a small pullback again on Monday.

Inspur Information, Tsinghua Unisplendour, Ruijie Network

(4) Innovative drugs: When tech falls, innovative drugs rise. If later tech rises again, and innovative drugs can continue to rise too, then that’s when it’s worth giving it a second look at a higher regard.

A “fast in, fast out” approach—trading for quick gains—works better for this, for example, an innovative-drugs ETF listed in Hong Kong with T+0 (you can pay attention to those).

(5) Commercial aerospace: Friday’s successful recovery is a bit similar to when ChatGPT4 first came out in 2023 domestically—it’s basically a very critical breakthrough point in the domestic industry’s progress.

The big black candle for tech on Friday doesn’t necessarily require too much panic. But when tech eventually sees a top or shifts into a bigger-scale consolidation, it could be around when ChangXin gets listed, or when GEM Index stock index futures are introduced. By then, the market’s style is very likely to change, and there’s also a high chance that new sectors will step in to take over the tech funds. Commercial aerospace is one of the relatively better choices, and the subsequent state of the sector is worth tracking.

HaiLanXin, China Satellite, Aerospace Engineering, Chengchang Technology

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This article is only my personal recap and review, not investment advice. Entering the market involves risk, so invest cautiously.