The timing aspect has already improved.

[Taoguba]

The chart above shows the recent trend of the all-A index. You can clearly see that it has started to strengthen. At the green arrow in the chart, the broad market index and the yesterday’s turnover 20 index both broke below the 5-day line in sync. The attempt to test the market failed, so I went to cash and stayed there until the last two trading days when it was pointed out that a lower open in the index is an opportunity. I started trying with the index. In the meantime, I completely managed to dodge the index’s main selloff wave.

The 5-day line is the lifeline in the short term. Once it breaks below the 5-day line and the 5-day line is pointing downward, the index is being capped by the 5-day line. This kind of action is like looking for meat in a cesspit. The reason these last two trading days have started to point out opportunities is actually very simple: the index has not continuously broken to new lows. The 5-day line has shifted from falling to moving sideways and upward, and the index is trading above the 5-day line. The balance of offense and defense has changed.

The logic is very simple. The biggest troubles that interfere with trading come from two points:

First, wanting to catch the bottom. Most people like this lost money during the selloff because they couldn’t control their hands. If the index rebounds and they don’t make money, they get anxious—there’s a feeling of missing the move. We started going to cash around 4080. On Friday and today, we went in to trade the index, and the broad market was only over 3800. I’m not in a hurry. I don’t believe the broad market will jump back to 4200. I can’t get back more than five points of loss from my five-plus testing trades.

Second, letting the market lead you by the nose when it comes to rising and falling. When the index goes up, others make money, and if you don’t, you start to panic. If you don’t stick to your own capability circle and instead go head-to-head with others, especially since many retail investors are men and are competitive and want to prove themselves, I suggest you communicate less with people whose patterns are different for no reason—it does more harm than good.

Speaking of this, let me add one thing: tonight I’ll mainly talk about the index. A lot of people think you don’t need to look at the index when trading short term. In the past, that was indeed the case. But the environment has changed now. Index + volume and turnover equals the volume-price relationship. Everything at the core of my approach revolves around these two elements. If you don’t agree that short-term trading needs to watch the index, keep watching—it’s also more harm than good.

The chart above is the broad market’s performance over the past year; the Shanghai Composite and the whole-A are pretty similar. The yellow line is at 3800 points. Since the index began to consolidate from the end of August last year, this level has had relatively strong support. These two days the index didn’t surge much, but compared with the global market, the performance is already quite strong. If the external environment doesn’t further deteriorate materially, the bottom of this correction should already have appeared.

What’s left is structure. Today, friends in the comment section also mentioned whether there’s a possibility of a five-wave decline. Broadly, it’s like two types of expectations:

One is to keep consolidating for a period of time, and once the impact from outside gradually becomes less sensitive, then start a new upward cycle. This is a 4th-wave rebound that directly turns upward.

One is that after the rebound, it continues to move downward and retest around 3800, making the double bottom solid—that is, a 5th-wave decline after a 4th-wave rebound.

The former directly rebounds and is stronger, but the foundation is thin; the latter keeps probing the lows, the structure is fuller, and the bullish signals are more certain.

A third possibility is that the external conditions continue to worsen, and if 3800 is broken, then keep resting. This scenario exists only due to external forces. From the strength inside the market, the probability is low.

Judging from these two days of performance: the market has had two straight trading days of lower open and higher close after consecutive Middle East incident escalation news. As the external intensity stays at the current level, the index gradually becomes desensitized to the news. To move down, you need a catalyst from the news flow. Over these two days, there have been relatively clear support actions from index ETFs and financials.

Lastly, let me talk about sentiment. After mid-January, when the airline companies’ trading were subject to strong regulation, it has already been two and a half months. Short-term performance has basically been not too good. In today’s A-share short-term ecosystem, the volume and turnover environment and the index environment can basically be clearly separated. When the index is weak and volume and turnover shrink, it’s absolute quantitative control; rapid rotation is the norm. When the index strengthens and volume expands, with price and volume rising together, there will be a focused theme main line, and you can see the presence of retail day traders. In the phase where quant is in primary control, you either do low buys and high sells repeatedly on popularity-and-capacity stocks that have logic, or you trade in held-together small caps. In the phase when price and volume rise together, you do the main-line capacity “big soldiers.”

Over these two days, the index has started to warm up. The strongest theme recently is that power/electricity has begun to play catch-up on weakness. In a cycle of action, the weakest part that stops falling and the strongest part that catches up on weakness are often the common stop-falling signals seen on the board.

I mentioned this matter a week ago. On that day, the 23rd was the recent low point for the index. Nevertheless, on the next day, there were double-head moves in Yu Energy, and then Huadian Liaoning, which started to catch up, began to go volume-heavy and stall at high levels. These last two days it’s been weaker than the index and has started to catch up on weakness too. Stocks that were strong during the index’s decline have been gradually catching up on weakness as well. This is also one of the signals of bottoming out from within the market. Back then, after the index stabilized, I estimated that many friends started entering the power sector on the 24th. If you follow the logic of “pick the strongest,” then likely many people went into power and added one more cut.

So bottom-catching has never been something you do in a rush and not in a hurry. Every time there’s a bottoming signal, in the comment section someone always gets so anxious. It’s infuriating—there’s little value in the “left-side bottom” that people are eager to act on. Not every major drop can V-turn. Back then, people commented that I would wait for the index to rise two or three days before entering. On the one hand, it takes time to confirm whether the index’s new-lows extension will continue, and the bottom structure needs time to be built. On the other hand, I also look to see whether the strong sectors will catch up on weakness, and whether new themes will appear.

Right now, the unusual activity is in three directions: first, power—after the catch-up on weakness, can it reverse and hold to extend the strength? That’s not easy. Second, new energy—recently oil prices have risen sharply, stimulating new energy development, and in addition, energy storage and behind-the-meter storage are hard-logic directions. Third, aerospace—after持续 falling for a wave, a small number of stocks, once the index stabilizes, start breaking upward.

Here’s an underlying thread: the first-quarter report. When the above themes overlap with performance, that’s an added bonus. With the index having such huge volatility in the first quarter, institutions didn’t make money either. After this stabilization, they will dig into the earnings/performance line. And when there are no themes the market can trade, performance becomes the best theme carrier. Currently, fiber optics and storage are both performing well; they are the earnings line. These are too high up, so you can pay attention to the newly starting directions after next quarter’s report.

Pick the timing first for short term, then pick the stocks. Tonight I’ll talk about the broader environment—i.e., the timing part. Stock selection isn’t time yet; this index hasn’t issued the signal:

Yesterday’s turnover 20 (in iFinD it’s yesterday’s turnover 10) is still in a shrinking volume state. Big funds haven’t come in, and there hasn’t been a trend shift. This data will be one beat slower than the index. In the past, when doing the “coinciding main line,” as soon as the index stabilized, the main line would immediately appear. Now the market is led by institutions, so the “coincidence” isn’t as obvious. It’s possible there won’t be any main line throughout the whole bottom region; instead it will be rotation, gradually focusing as the market rises.