[Offense and Defense Practical Strategies] — April 2 Pre-Market Outlook

Objective Information [TaoGuBa]

On Wednesday, the total trading volume of the two markets was 201.25 billion, up by 19.9 billion compared with the previous trading day. The three major indices opened higher, then fluctuated, and closed higher; the average gain was over 1.5%. The Shanghai Composite Index traded through the day and successfully filled the gap. Among the two markets, 4,228 stocks rose and 851 fell; overall, the market showed a走势 of opening higher and broad-based gains. On the larger structure, the Shanghai Composite Index is still within the larger structure of this round of pullback; however, in the short term, there is no clear sign that the rebound has ended.

In terms of short-term sentiment, it was weaker than the market overall. On Tuesday, the newly favored group stocks such as Xin Neng Tai Shan, Hua Dian Liao Neng, Hua Dian Energy, and Zhongli Shares also ended up with limit-downs or major declines. There was a rather sizable loss effect in short-term follow-through; the board-failure rate reached as high as 40%. There were many names that opened high and then went low, or surged then turned and reversed within the day, showing a relatively large intraday “return wave.” Short-term follow-through sentiment and the market’s overall performance show a clear mismatch.

Regarding theme hot spots, after the early rotation showed strength from computing power, it was relatively strong. But later, as the pharmaceutical sector pulled volume and rallied strongly during the session, the pharmaceutical sector ultimately became the strongest direction of the day. The directions that performed relatively well on the previous trading day—commercial aerospace sports, forestry, rail transit equipment, and so on—today generally pulled back proactively and became the sectors with stronger “money-losing effect” during the day.

Personal Thoughts

If you say Wednesday’s tape was weak, then of course it wasn’t weak—at the very least, after opening higher, it was able to stabilize and hold in a sideways range without showing a big decline, which is already not weak. But if you say it was very strong, then it also wasn’t strong to any great extent. On the one hand, the indices were strong and most individual stocks posted broad gains, but sentiment’s performance was disappointing. On the other hand, the large-cap indexes in Japan and South Korea rose by more than 5 and about 8 points respectively; and on the previous night session, the Nasdaq’s gain was also 3.8 points. Yet in A-shares, after opening higher, it basically didn’t expand further upward by much. From this perspective, it actually has the feel of “strong with weakness inside.” In this situation, if the overseas markets in the night session don’t show further strength, then today’s expectation would be more likely to adjust. The good news is that the US stocks in the night session rose again. That means A-shares today also has a reason to open higher and continue to attempt an upside move. From the index structure, the pressure on the Shanghai Composite Index is around the 4,000-point level above; above 4,000 is a strong pressure zone. This position is still relatively far away, and tomorrow it is likely it won’t be reached. But the pressure on the Shenzhen Component Index is much closer—right above the gap; once the gap is filled, the pressure above becomes bigger. Given the current market trading volume, it is very difficult for the Shenzhen Component Index to clear and resolve the overhead pressure zone. In other words, even if the rebound continues, as long as it isn’t an obvious, high-volume rebound, the upside room is relatively limited. So under these circumstances—where overseas rallies cause an opening higher with no further expectation gap—within the day, there usually won’t be much room for further jockeying and maneuvering. That means that an opening higher caused by an overseas big jump typically benefits the “holding shares”资金 rather than the “holding cash” funds.

On short-term sentiment, although a few high-position basket trades have collapsed, yesterday some of the names that had broken down/failed boards actually performed pretty well—about half ended up closing in the red, and there were also cases of turnaround and limit-up. This means the trial-and-error cost for short-term follow-through has been reduced. The most important thing to observe and anchor is Shen Jian Shares: whether Shen Jian Shares will have a big “supplementary sell-off” will directly determine whether sentiment continues to split or whether it shows some repair. Based on what it looks like now, the probability is roughly half and half; it will need more observation after the market opens. As for a few ultra-high flyer-type names like Hua Dian Liao Neng and Hua Dian Energy, on Wednesday their moves were a mild style of limit-down, not a “nuclear button” limit-down. Even if they fall further, it probably won’t be that kind of nuclear-button走势; it should be more of a milder path, which would lessen the impact on sentiment. So if Shen Jian Shares performs better than expected, then for short-term trading and gambling, it can be combined with the intraday stronger themes to do some arbitrage.

As for direction, here I won’t make a forecast. We should follow the market, because the rotation rhythm is truly too random at the moment. Moreover, on Tuesday, every strong direction was met with proactive selling on Wednesday, which also makes it completely impossible to evaluate the continuity of intraday strong directions. Therefore, we can only judge on the spot, or make a directional bias based on the pre-market auction expectation gap. For example: if Shen Jian Shares opens higher and continues higher, then it may lead to a repair in the aerospace direction and so on, based on that line of thought. As for the strongest pharmaceutical direction on Wednesday, today it has entered the “banquet stage for holders,” and the late-coming funds don’t really have much of a point to gamble on.

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