3.22 Review, not pessimistic

Last week, the Shanghai Composite Index continued to fall sharply, breaking below 4,000 points and even dropping through the half-year moving average. However, we observed that market volume did not increase significantly. Next week, the index and market sentiment are expected to undergo a strong recovery. We need to watch whether trading volume picks up and which sectors can effectively resonate with the index. [Taogu Ba]

Over the weekend, news surfaced that Persia Cat and the United States are talking peace, indicating both sides are feeling the pressure. However, Persia Cat’s conditions are very harsh, and the other side is unlikely to agree. Both parties are still taking actions. It is foreseeable that energy prices will rise, and in the short term, it will be difficult to effectively curb this trend. Countries heavily dependent on imported oil and natural gas are elevating energy security to a higher priority. Energy substitution will be a focus for a long time to come.

In relation to A-shares, the beneficiaries are still in the energy substitution sector—electricity, energy storage, photovoltaics, coal, etc. The core players in electricity continue to push higher, but overall disagreements remain significant. Moving forward, normal market behavior will likely be sideways consolidation at high levels, with funds gradually pulling back to lower positions for capacity replenishment, leading to internal sector rotation.

Energy storage and photovoltaics saw a small climax last Friday. Over the weekend, news catalysts continued. If the momentum persists tomorrow, there may be some divergence during trading. If the market remains steady with minor divergence, it could be better. However, if there is aggressive buying at opening or during pre-market, the probability of a quick rebound increases.

Coal, compared to oil and natural gas, has seen significant price increases. Coal offers a higher cost-performance ratio, and many power companies will switch to coal-fired power generation in the future. As a result, the logic around coal is quietly changing. Its overall position is not high, so it can be considered on dips.

CPO, which led with three straight limit-ups before Friday—Reis Kangda, Mingpu Optoelectronics, and Yunnan Germanium—caused many large gaps up, which was quite irrational. In the current environment, any sector daring to open with a big gap will likely be targeted for quantitative shorting. The divergence between the ChiNext Index and the Shanghai Composite Index has become serious, and since CPO’s core weights are heavily represented in the ChiNext, the sharp pullback after Friday’s surge is understandable. The market here is more reflective of the US stock market, so watching how US stocks like Lumen perform is key.

Commercial aerospace has been adjusting from its high levels for nearly two months. There were intensive launch missions in late March and April. There will be many catalysts ahead. Personally, I see commercial aerospace as still vast and promising—waiting to see when the second wave begins. If some investors are trapped, there’s no need to cut losses at this point. They can either continue to buy on dips or hold steady and wait for the second rebound.

In any case, at this level, retail investors and hot money tend to become more pessimistic and desperate. Often, this is when a genuine rebound is not far off. Maintaining a lighter position will make it easier to handle either further adjustments or subsequent rebounds.

The above views are personal notes for reference only and do not constitute any investment advice.

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