[Red packet] July 14 Research Institute daily recap — Behind the V reaction, who is counterattacking? What to do next?

Hello everyone. With massive daily information and more than 5,000 listed stocks, how do we simplify complexity to extract the most critical content? Here are three core operational ideas from the research institute: [Tao Kua Ba]
1、Screen hotspots to set direction: Ignore scattered and short-lived niche themes seen during the session, and precisely map sustainable “main theme” hotspot sectors that have triple support from policy, industry, and capital—capable of extending into consecutive-rising streaks. Avoid the traps of one-day tourism themes, and reduce invalid trades from the root. 2、Select the core and catch the leaders: After locking onto the hotspot sector, filter through the sector to identify the highest-visibility core stocks with the tightest capital clustering, and only trade the front-runner leaders that market funds actively attack. 3、Build a system to control profits and losses: Combine years of hands-on experience to develop a mature battle-proven strategy system in-house, including fully standardized rules for the complete set of take-profit and stop-loss operations. Strictly follow the system signals to participate in main-theme core targets, suppress emotional chasing and panic selling, and steadily fine-tune for long-term stable compounding profitability. Reference only. Keep breaking down the full market in real time every day, sort out the rhythm of main-theme rotation. Follow me to keep creating value for you!

Today’s market action— for all A-share participants—can be described as a textbook-level psychological game. If you shut the app at some point in the morning because you couldn’t bear to look, then when you open it again at the 3:00 p.m. close, you’ll probably stare for a long time at that surging green candle that shot up from the ground, and even doubt your own eyes.

In the first half, the market was shrouded in despair. During the morning session, the SSE Composite Index silently slipped below the 3,900-point integer psychological level; the STAR 50 Index even dropped straight down, with losses briefly widening to 4.85%. Trading volume showed a stepwise contraction— the market felt like a dead pond, lacking any life. Many technical traders, watching broken-support candlesticks and continuous capital outflows, felt mixed emotions, hesitating whether to hit that “unsubscribe” key before lunch to cut their losses and leave, in search of peace of mind.

In the second half, the situation changed abruptly. After the afternoon open, the three major indexes surged up instantly. The ChiNext Index’s intraday gain expanded astonishingly to 3.5%, and more than 4,200 stocks across the market turned green. On the board, previously oversold technology hardware stocks became the vanguard of the rebound. Dongshan Precision was aggressively bought up, with main net attention of over 4 billion yuan; Xinyisheng and Huadianxin, among other compute-power core names, rushed to limit-up or surged more than 10%.

In the morning, you were still thinking about how to “cut losses gracefully.” By the afternoon, the market used harsh facts to tell you— you’ve been washed out. What exactly happened behind this? Why did the morning and afternoon feel like they were separated by two different bull-bear cycles? Let’s peel back the layers and replay this shocking reversal from the beginning.

I. Morning panic: the hopeless moment of a falling market on shrinking volume
The data at the morning close was truly suffocating. The SSE Composite Index slipped below the 3,900-point psychological line, while the total market trading volume at the same time across both markets shrank by as much as 227.2 billion yuan compared with the same period the previous day. Two consecutive sessions of shrinking volume, two consecutive sessions with the market’s focus shifting downward— the market’s “emotional thermometer” had already dropped below freezing. There was a point when only 1 consecutive-limit stock remained—an ice-cold moment never seen before.

However, details often hide in corners most people ignore. Even though the index was grim in the morning, the board was not a one-piece, one-way selloff. Sectors such as oil and gas extraction, pharmaceutical commerce, and coal extraction were all drifting higher against the trend. Blue Flame Holdings capped the limit-up despite the weak market; Yao Yigou closed with a big-limit-up; Dayou Energy also capped the limit-up strongly. Even in the technology sector, Huatian Technology earlier in the day also tried to break into limit-up. This signal is extremely critical— it shows that amid the panic atmosphere in the morning, some funds with special characteristics did not follow the market’s fear. Instead, they laid out positions against the trend. These funds have sharp instincts; the directions they choose often have defensive attributes or are supported by hard fundamental logic. This planted the first seed for the decisive comeback in the afternoon.

II. The reversal in the afternoon: the combined result of three forces
The violent rally in the afternoon was not accidental—it was the perfect cross-coordination of three forces.

First force: A “price-stabilization order” came from overseas markets. Today, the stock markets of Japan and South Korea collectively closed higher, especially SK Hynix and Samsung Electronics, the global semiconductor bellwethers, which began to rebound. In my prior recap article, I said that this round of sharp A-share tech stock correction originated from the huge shock to the global semiconductor sector caused by Meta selling off compute capacity. If the source shows signs of stabilizing, then the downstream panic sentiment should naturally fade. The rebound of the Korean and Japanese leaders, like a clear flare, told A-share tech stock investors that perhaps the most panic-filled moment may have already passed.

Second force: On-market fund rotation found a new landing spot. Funds inside the market were still flowing out from semiconductors, commercial aerospace, and computer application sectors that were high and had broken down below support. But the situation changed fundamentally in the afternoon. Those withdrawn active funds did not choose to exit and watch from the sidelines; instead, they turned around and surged in at an even faster pace into compute-power hardwares (PCB, optical modules) and non-ferrous metals. Judging from main fund data: Dongshan Precision had net attention of over 4 billion yuan; Xinyisheng, Jizhi Yuchuang, and Huadianxin, all showed massive net inflows of large orders.
Why specifically compute-power hardware? There are two clear logic chains:
“The shovel-seller” logic remains strong: After the global semiconductor selloff, the market realized that regardless of how chip prices fluctuate, the AI big-model race is not stopping, and compute infrastructure construction is also not stopping; expectations for server shipments have not been cut sharply. Therefore, as “shovel-sellers,” PCB (printed circuit boards) and optical modules have rigid demand. Once they’ve fallen to the right level, smart money naturally dares to take over.
Emotion transmission from Hong Kong stocks: In the afternoon, Hong Kong-listed PCB concept stocks surged first. Kingboard Laminates Holdings jumped by over 14%, and Guanghe Technology rose by over 11%. Hong Kong is a market dominated by foreign capital; when tech hardware stocks there exploded, it directly ignited sentiment for the same sector in A-shares, forming a linkage effect.

Third force: Cyclical stocks “held up the index” with a stabilizing counterweight. Due to the re-escalation of the Iran-U.S. conflict, oil and gas, coal, and non-ferrous metals all strengthened across the board today. Crude oil futures jumped by over 9%, fuel oil rose by over 8%, and there’s no sign of easing in the Middle East situation— the high-level support in energy prices remains solid. As A-share oil and gas sectors continued to ferment, Tongyuan Petroleum reached a long-limit-up; Zhongman Petroleum and Blue Flame Holdings both hit limit-ups. In non-ferrous metals, Hong Kong-listed aluminum stocks’ gains expanded in the afternoon: China Aluminum rose by 9%, and China Hongqiao rose by 7%. With half-year results, aluminum companies saw a broad explosion in performance: China Aluminum’s net profit was forecast to surge by 58%-73%, and China Hongqiao by 39%. With earnings backing and a price-increase logic, cyclical stocks stabilized the index’s center of gravity at the key moment.

These three forces—overseas stabilization, oversold rebounds in compute-power hardware, and cyclical stocks’ strong support—resonated together in the afternoon, which is what created the V-shaped reversal.

III. Two sides of the same coin: yesterday’s plunge and today’s surge
Today’s reversal is, in fact, the two sides of the same coin compared with yesterday’s plunge. Yesterday’s threefold pressure on semiconductors: SK Hynix’s earnings below expectations, the re-start of geopolitical conflict, and disorderly “chase-and-sell” behavior by quant funds. Today’s ability to rebound is because, among these three pressures, two of them have shown marginal relief.

First, SK Hynix rebounded by nearly 4% today, indicating that the short-term negative from earnings below expectations is being digested by the market. More importantly, news came after market close that SK Hynix has started accelerating overseas factory construction and began placing orders for DRAM manufacturing equipment. This signal is crucial— when retail investors panic-sell due to earnings not meeting expectations, industrial capital is accelerating expansion against the trend. Industrial capital’s judgment about long-term industry prospects is often more accurate than the stock market’s short-term sentiment. Signals of industrial capital expanding against the trend are typically leading indicators of a cyclical bottom.

Second, the selling pressure from quant funds has clearly weakened. Today, although the semiconductor sector still showed net outflows, the amount was only 13.6 billion yuan, compared with yesterday’s nearly 60 billion yuan of panic outflow. This reflects a steep decline, meaning the most intense, irrational, passive “unsubscribe” selling climax has already passed.

So today’s rebound is not without reason; it is the natural release after the spring is compressed to the extreme and selling pressure exhausts.

IV. Shrinking-volume risks remain; the rebound is not a reversal
Even though today’s V reversal is uplifting, we cannot ignore one core hidden risk—trading volume is still contracting. Today, both markets’ total trading value was 2.7 trillion yuan, which shrank again by 115.2 billion yuan versus yesterday. That makes it the third consecutive trading day of volume contraction: the first day shrank by 570 billion yuan, the second day shrank by 220 billion yuan, and today shrank another 110 billion yuan.

These data tell us a fact: today’s rebound is the result of rotation among existing funds, not a trend reversal driven by an influx of incremental capital on a large scale. The money is still the same money. It just exited semiconductors and commercial aerospace, then switched direction and poured into compute-power hardware, oil and gas, and non-ferrous metals. Therefore, the correct understanding of today’s rebound should be— a technical pullback caused by repairing extremely pessimistic sentiment, not a signal of a trend reversal. For a real big bull-market-level move, we must see effective expansion in trading volume and must see incremental capital willing to take over chips at the current levels. If trading volume still cannot rise in the coming days, then today’s green candle may just be a brief breath during an ongoing downtrend, rather than a real change of trend.

V. The action by the Korean government: an overlooked variable
In the global market chessboard, another variable that’s easy to overlook is brewing a change in the game. This afternoon, the South Korean government announced that it will hold a meeting of the four major economic departments’ senior coordination mechanism this Thursday to specifically study the impact of single-leg leveraged ETFs on the stock market and to formulate response measures.
The importance of this news cannot be underestimated. This year, the severe turbulence in South Korea’s stock market has been amplified to a large extent by these leveraged ETF products. The prices of leveraged ETFs with Samsung Electronics and SK Hynix as underlying assets have been close to cut in half, triggering forced closures of large numbers of institutions, creating a “the more it falls, the more it sells; the more it sells, the more it falls” death spiral. This is also the main reason why it has increased attention to the Korean stock market among A-share investors who previously only watched U.S. stocks’ performance. The Korean government stepping in now indicates regulators have already realized the huge threat that highly leveraged derivatives pose to market stability. Once South Korea rolls out measures to limit leveraged ETFs, the passive selling pressure facing the global semiconductor sector will be greatly alleviated. This is undoubtedly a sword hanging over the heads of the semiconductor sector. If it is removed, it will be a major positive for risk appetite repair across the entire tech sector.

VI. How to look ahead?
First, today’s rebound is “catching breath,” not “a reversal.” Three consecutive days of shrinking volume show that incremental capital is still waiting on the sidelines. From the chip structure, there are many trapped positions accumulated above 3,900 points; the market is likely to keep probing this area repeatedly, and a second pullback is not out of the question. Don’t change your belief because of a single green candle, and don’t fall into despair because of yesterday’s red candle. When sentiment swings from one extreme to another, it often carries risk.

Second, closely monitor the Korea developments and wait for the global semiconductor sector’s “policy floor.” If the Korean government truly issues strong measures to restrict the disorderly expansion of leveraged ETFs, it will very likely mark the official establishment of the global semiconductor sector’s “policy floor” for this round of selloff. Then, together with the fundamental bottom signals from industrial capital expanding production, the medium-term allocation value of semiconductors will stand out.
In other words, only after this round of tech declines genuinely stabilizes will the market return to a period with a real money-making effect.

A final note: I know you’re in a hurry, but don’t rush yet

In periods when the market is rising, many retail accounts are in profit, which naturally leads to the thought that stock trading might actually be this simple— and a sense of “enlightenment” can arise spontaneously. But once you enter a downtrend phase, especially during a major selloff leg like the current one, not only do you give back all the profits you’ve taken to the market in a short time, but you may also suffer losses of principal. Who hasn’t had a past? Everyone has been through experiences like this. At such a stage, only those who remain calm are the real masters—why can they stay so composed? Because they have confidence in their system. A good system is one that can feel the market’s “breathing” when clinging to it. When the market is bad, there’s basically no trade signal, so there’s no trading opportunity—or if a trade opportunity appears, it still falls within the system’s probabilistic range, turning into either no surprises or even profits. Chasing and selling every day at this stage is a big taboo—better brew a pot of tea and come chat with us here at Lao Zhuang.

Disclaimer: This article only records my own operations. Investing involves risk; trading requires caution. The content of this article belongs to my personal ideas and records, and is only for personal sharing of how I understand the market. It does not constitute any investment advice. For reference only. If you buy or sell based on this, you bear the gains and losses yourself.