Straight to the core, A-shares showed a strong upward trend today, with the yellow line (representing small and mid-cap stocks) clearly above the white line (representing heavyweight stocks) in the tick chart, showing the general rise of more than 5,000 individual stocks. Excluding the sharp declines of the previous two days, today's market sentiment does have a hint of a bull market. However, some keen stockholders have noticed a key problem: yesterday's market experienced a large volume decline, while today's rebound is a shrinkage, and the two-day trading volume gap is close to 50 billion. According to past experience, the second trading day after the general rise is often prone to divergence or even adjustment. Will the market repeat itself this time?
1. The recovery of market sentiment has not been completed.
After yesterday's broad market decline, the originally positive bullish view has been significantly reduced, and pessimism has dominated the market from last night into today's midday session. This phenomenon shows that yesterday's correction market showed extreme characteristics. For extreme markets, only a strong rebound can effectively alleviate market anxiety. Looking back at the market performance on February 28-29, there was a similar extreme market and then a strong rally, and the market has a reference sample. If the current market does not show a stronger rebound than on February 29, most investors already have negative expectations in their minds: if the market fails to continue to rebound tomorrow, this is likely to be interpreted as a signal to lure bulls, and not only will it be difficult for new funds to enter the market, but existing funds may also flow out further. Therefore, the restoration of the current market sentiment can no longer be compensated by relying solely on the general rise in a single day.
2. The Shanghai Composite Index is close to a new high, but other sub-indices are not following.
In response to this question, Monday's market performance revealed a phenomenon in which blue-chip stocks led by large-cap stocks performed well, with some stocks even hitting record highs, while the ChiNext and CSI 1000 indexes, which are dominated by micro, small and medium-sized enterprises, performed weakly, sliding to relatively low levels, and some sectors even fell back to near the lows of January, showing that the index did not fall significantly but the market value quietly shrank. Looking back at the market on February 28 and 29, the trend of the major indices tends to be the same. However, under the current market structure, the Shanghai Composite Index is close to rebounding to a new high after a huge earthquake, while the stock index of micro, small and medium-sized enterprises has still not been able to effectively stabilize. The good news over the weekend is more inclined to support individual stocks with large market capitalization and high dividends, and institutional investors have a deep understanding of this. Based on the current situation, I think that even if the market continues to move upwards in the coming trading days, the divergence within the market is likely to be more pronounced, i.e., blue chips are expected to remain strong, while MSMEs are likely to move more randomly and volatilely, and the market is becoming more divergent.
3. Stand in line, stand in line, or stand in line!
After a short-term market recovery, we should not be blindly optimistic that we will continue to chase small caps and underperforming stocks because of the good performance of the market on a single day, because after a series of changes over the weekend, the investment environment has changed substantially, and everyone needs to have a clear understanding of the investment objectives of holdings. In addition, if the market volume is not effectively amplified, it means that the current rise may be caused by the short-term game and over-falling rebound of the market funds. Today, Hong Kong stocks did not rise sharply along with A-shares, but continued the downward trend, which reflects the cautious stance of market funds. Although the A-share market is performing well today, it does not mean that a bull market is coming. A real structural bull market can occur in low-priced, high-quality blue chips that don't usually get much attention.
4. How can a reversal be established?
In fact, it is very simple, and the key point of identifying the market trend is relatively intuitive, that is, to pay attention to whether there is a continuous increase in the market in the future, and which type of variety the trading volume is concentrated in. For example, if the trading volume continues to converge on the weighted stocks such as the medium and special valuations, this indicates that the weighted stocks are strengthening, which may lead to a reversal of the index. Conversely, if volume remains concentrated in thematic stocks, the current market conditions can only be seen as a rebound rather than a reversal. Because in a round of sustainable rising market, usually weighted stocks will take the lead in stabilizing the index and laying the foundation for its rise, and then the theme stocks will rise in relay, forming a pattern of "weighting the stage and theme singing". In order to ensure the sustainability of the market in the later period, heavyweight stocks should first play a role in stabilizing the market, rather than letting theme stocks consume liquidity prematurely. Because the volume can not return to more than one trillion, it is difficult for the market to dance together with weighted themes as it does today.
Overall, today's broad rally in the market has largely served as a repair for yesterday's market plunge caused by misreading the news, and has not fundamentally changed the market landscape. It is expected that the market will continue to repair sentiment tomorrow, but the key is whether the heavyweights can continue to play a positive role. If there is a "one-day" market in theme stocks, everyone should return to pay attention to the performance of heavyweight stocks. In the future, there may only be structural gains in a few specific sectors, similar to the "Beautiful 50" market in 2017.
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