From "a great start" to "a green close," the roller coaster continues, and the leaders haven't looked up!

February 2nd, the Dragon’s Head Raising Day, today the A-share market neither turned back nor lifted its head. In the evening, everyone has time to get a haircut. Next week, the dragon will definitely lift its head!!

Today’s market is described as a brutal震荡, with the morning showing a “brief recovery, panic selling, and trampling,” but after lunch, the situation suddenly changed. Could this be a carefully orchestrated scheme by the main players?

The A-share market staged an extreme rollercoaster of fragmentation, from nearly 3,000 stocks closing in the green in the morning, with the synergy of computing power and energy sectors leading the rally, to large-cap stocks breaking down and filling the 3977-point gap in the afternoon. In the end, only about 600 stocks closed higher, ending with a volume-driven decline. This sharp reversal in a single day reflects not only the direct competition of funds but also the market’s emotional shift from euphoria to panic, clearly revealing the current fragility and structural contradictions at key levels in the A-share market.

In the morning, the market showed a clear recovery trend. After opening, the computing power and energy sectors led the gains, with more stocks rising than falling. The nearly 3,000 stocks closing higher boosted market confidence quickly, with the Shanghai Composite Index briefly stabilizing above 4,000 points. Investors generally expected the trend to continue. Although there was a setback with a break below 4,000 points before the close, the index quickly recovered above 4,000 points before the end of the session, reinforcing the expectation that “the adjustment is complete and the rebound is underway.”

In the afternoon, the market suddenly turned volatile. Stimulated by news of Tesla photovoltaic equipment procurement, heavyweight stocks like CATL drove the ChiNext Index to a new high for the year. It seemed the market was strengthening across the board, but then large-cap stocks collectively broke down, releasing heavy selling pressure. The Shanghai Index not only lost the 4,000-point level but also filled the 3977-point gap from earlier this year, dropping to a low of 3955.71 points before closing at 3957.05, down 1.24%. The entire day saw significantly increased trading volume, but with a typical volume-driven decline. The ratio of advancing to declining stocks was extremely unbalanced, with only about 600 stocks rising and over 4,700 falling. The profit-taking effect collapsed across the board, and market sentiment plunged from optimism to panic. The situation can be viewed in three stages:

1. In the early morning, sentiment was mainly driven by a recovery rally, with the high-activity sectors of computing power and energy leading the gains, coupled with broad stock gains. Short-term bullishness temporarily increased, and confidence in the 4,000-point support was strong, representing a rebound after a continuous correction. This emotional warming was mainly due to short-term oversold rebounds and sector-specific catalysts, without forming a broad consensus for sustained buying. The characteristic was a stock game among existing funds.

2. After the index regained above 4,000 points at midday, market sentiment shifted to cautious optimism. Investors generally believed the index had stabilized and risks had been released, but trading volume did not increase accordingly. New funds were hesitant to enter, and sentiment was fragile, balanced between bulls and bears. This optimism lacked strong support from fundamentals or liquidity, relying mainly on psychological dependence on key levels. Once heavyweight stocks weakened, sentiment could reverse rapidly.

3. In the afternoon, the breakdown of large-cap stocks marked a turning point, with panic spreading. The breach of the 4,000-point level and the filling of the 3977-point gap triggered algorithmic trading and stop-loss orders, combined with profit-taking, creating a negative cycle of “decline—panic—selling.” Sentiment had already detached from fundamentals, entering an irrational phase of selling. The extreme imbalance of gains and losses, with volume-driven declines, indicated the market’s short-term emotional bottom, with panic selling being fully released.

From an emotional cycle perspective, this market fluctuation is a violent oscillation between policy and market bottoms. The rapid shift from recovery to bottom reflects the core issues of insufficient confidence, increasing divergence, and lack of incremental funds in the current A-share market. Under the game of existing funds, the siphoning effect between sector stocks and heavyweight stocks further amplifies emotional volatility.

In the late afternoon, volume-driven declines, driven by multiple factors, exerted both technical and emotional pressure. This was not caused by a single factor but by a resonance of technical resistance, fund competition, external shocks, and fragile sentiment.

1. Technically, the 4,000-point level and the 3977-point gap from the beginning of the year are key resistance levels. The index had repeatedly oscillated around 4,000 points, accumulating a large number of trapped and profit-taking positions, indicating a need for adjustment. The 3977-point gap, as an opening gap from early this year, is likely to be filled according to the “gap fill” rule of A-shares, which triggered technical selling and further declines.

2. On the liquidity side, the intensification of existing stock competition and profit realization are core causes. Recent market activity showed a slowdown in new funds entering, with trading volume increasing but mainly driven by outflows. Northbound funds saw significant net outflows in the afternoon, with heavy selling of heavyweight stocks. Previously accumulated gains in sectors like computing power and new energy prompted strong profit-taking, and portfolio adjustments in the afternoon led to further declines in heavyweight stocks, dragging the index down.

3. External shocks and news further suppressed risk appetite. Global market volatility and uncertainty over Federal Reserve monetary policy increased risk aversion among foreign investors. The short-term catalyst from Tesla photovoltaic news quickly faded, unable to offset internal selling pressure, causing risk appetite to decline rapidly.

4. On the sentiment front, market confidence is fragile, creating a negative feedback loop. After continuous corrections, investors’ confidence in holdings is unstable. The morning rebound failed to form a consensus, and the afternoon breakdown triggered panic selling. Retail and institutional funds exited simultaneously, leading to a broad weakening of the market.

In my personal view, the volume-driven decline and gap fill are not signs of a trend reversal but rather a concentrated release of short-term risks. The subsequent phase will likely be a consolidation and emotional recovery, characterized by “index oscillation and structural differentiation.” There is no need for excessive pessimism.

From a technical perspective, the 3950-3977 point range provides short-term strong support. After filling the 3977 gap, the technical risks since the beginning of the year have been eliminated, and the downside is limited. The daily KDJ and RSI indicators are in oversold territory, with short-term rebound momentum gradually building. If the 3950 support holds, a rebound in the coming week is highly probable.

From a policy and fundamental perspective, the medium- to long-term outlook remains positive. The domestic economy is gradually recovering, corporate profits are improving, and policies continue to signal stability. The new “National Nine Articles” and the improvement of long-term capital entry mechanisms provide liquidity support. Sectors like computing power, new energy, and semiconductors have clear industry trends and strong earnings visibility, remaining attractive for long-term investment.

From sentiment and liquidity, after the panic is released, confidence will gradually recover. The single-day volume decline has completed the panic selling, and historical experience shows that sentiment bottoms are often followed by phased recovery. If trading volume stabilizes and northbound funds return, market confidence will slowly rebuild, and existing funds will refocus on high-growth sectors, reactivating structural opportunities.

For future trading, three core strategies are recommended:

1. Keep positions within 50%, cautiously bottom-fishing in high-growth sectors, waiting for clear stabilization signals, avoiding chasing highs or bottom-fishing weak stocks.

2. Focus on structural opportunities, especially in high-activity sectors like computing power, energy, and new energy, as well as defensive sectors with high dividends and strong earnings certainty.

3. Downplay index fluctuations, adhere to industry logic and earnings fundamentals, and avoid pure theme speculation and overvalued stocks.

For us, there is no need to be disturbed by extreme daily fluctuations. Rationally view market volatility, stick to high-growth sectors and earnings fundamentals, and seize structural opportunities amid oscillations. After this emotional and technical “deep squat,” market sentiment will be cleansed, making future stabilization and rebound easier.

Weekend is coming—rest well. Hopefully, this week was the worst in the A-share market this year. Next week, regain confidence. Our core strategy of “breaking and recovering” still helps us pick good stocks!