Hexun Investment Advisor He Bing: Shrinking volume pullback, reversing to pick up?

Another bearish candle is showing up today—are we in the process of backing up to pick someone up? After yesterday’s peak for innovative drugs, today it continues to strengthen. How many more days can the main theme actually keep moving? Optical communications is still holding up firmly, continuing to look down on the rest of the field. What should you do next? Do other directions still have a future?

Yesterday I mentioned that the overall market has low volume—it was basically a small climax. All sectors are selling points, and there’s only one direction that’s a buying point—only medicine is a buying point; all other directions are selling points. Look at today: all directions have started to plunge. The number of advancing and declining issues, the Shanghai Composite Index, and small-cap stocks in particular are all weakening.

A friend asked: today it turns back down again and is about to enter a small “ice point.” Is the end-of-day a bottom-fishing opportunity? This question is well asked. The market is now in a consolidation phase. If end-of-day panic truly intensifies and the number of advancing stocks falls below 1000, you can bottom-fish. But be careful: tomorrow’s early session may still have another wave of panic. So taking a position at today’s end of day and then doing rolling T tomorrow is the best approach. After two consecutive days of strong gains in the U.S. stock market, today there were some negative headlines during trading. Most likely, tonight the U.S. market will also be a “panic kill” at the open. So in A-shares tomorrow, the opening call auction will probably still be panic as well. The prerequisite is that today continues to close higher.

Today, major indices again broke below the 5-day line, with plenty of back-and-forth friction. Even the strongest small-cap stocks have turned down. When bottom-fishing, there are two points: control your position size, and go in and out quickly. If you want to bottom-fish, I suggest bottom-fishing the broad market and using ETFs. In tech stocks: after two days of consecutive strong gains in the U.S. market, if tech stocks adjust tonight, tomorrow the A-share tech stocks will also face pressure in the early session. So bottom-fishing should mainly be done via ETFs.

For my view on the broader market in the later stage: two words—grinding the bottom. Small-cap stocks today have already broken below the 5-day line. Although the Shanghai Composite Index hasn’t broken below the 5-day line thanks to bank support, the ChiNext 50, CSI 500, and the Growth Enterprise Market have all broken levels. The broad market likely still has a need for a second pullback, such as 3900, 3880, 3850—exactly which depends on the news flow. Has the rebound rally ended? We can’t draw a conclusion yet—we can only conclude that we’re grinding the bottom.

As for sectors: the CPO sector remains in consolidation today, down 1.2 percentage points. Optical communications is a bit stronger, down just 0.05. Tech stocks still have funds working on them, but after two consecutive days of big gains in U.S. tech stocks, if U.S. tech stocks fall sharply tonight, tomorrow A-share tech stocks will have some pressure. If U.S. tech stocks drop sharply tonight, A-shares tech will be affected.

The key is innovative drugs. Yesterday I said innovative drugs saw both volume and price rise together. In the early session, the divergence was the opportunity to “back up and pick people up,” similar to yesterday’s play. After 10 o’clock they lit the fire. Later, dragged down by the indices and hit by the tech sector’s impact, rotation into other sectors caused medicine to dip a bit. But it’s not a big problem, because today the volume continues to expand, and the core products keep pushing forward. Of the key names I mentioned yesterday, during today’s trading they still made new highs. In the afternoon, we’ll need to see whether they continue to push ahead as a group. Overall, among all directions, medicine is the best at absorbing and carrying momentum.

As for commercial aerospace, electricity and other directions: you don’t need to look at commercial aerospace, and you also don’t need to look at electricity continuing to get smashed downwards. Yesterday I pointed out two directions: optical communications and innovative drugs. As for everything else, avoid them across the board.