February 4 Review -- Freezing Point Resonance Oversold Recovery, Don't Rush to Chase High Tomorrow

I’m outside, so here’s a quick recap, [Taogu Ba]

Two consecutive days of decline, with the index at freezing point, sentiment at freezing point, and direction at freezing point—three resonating. Today’s recovery was probably within everyone’s expectations, but the strength of today’s rebound indeed exceeded personal expectations. However, in my personal view, the index showed signs of breaking below support in the past two days, so the subsequent trend should mainly be wide-range oscillation to digest the decline. Therefore, I don’t recommend everyone to treat a single day’s rebound as a sign of emotional stabilization or reversal. Today’s rebound was strong, and there might be opportunities to push higher again during intraday trading tomorrow, but I wouldn’t chase high tomorrow.

So, today’s oversold rebound is based on two factors: first, the index was oversold and couldn’t hold the 4000-point level without stopping the fall; second, sentiment hit a freezing point, with the number of consecutive limit-ups dropping to 3, hundreds of stocks hitting the limit-down, and only 700 stocks rising. Additionally, the trend direction was lost—materials stocks continued to fall, rotation directions didn’t rotate, and tech stocks still plunged in the trend direction. When things are extremely oversold, a strong oversold rebound can occur.

From the market perspective, although today’s broad rebound looked strong intraday, I personally think it still lacks some initiative. For example, the early morning breakout from 3 to 4, Wanfeng leading with chemicals, Hengdian Film with media, consumer, and AI, Hongbaoli with chemicals, Julli Sockets with aerospace, Shuangliang and Junda with photovoltaics, Zhejiang Wenhulian with AI, etc. While these stocks are recovering within their respective sectors, the sectors themselves are not very strong. So, I lean towards viewing today’s recovery as mainly driven by the top 1-3 stocks in each sector and the front-line groups in various directions forming the core of the rebound.

Although the index has room to fall, based on today’s performance alone, it shouldn’t be seen as a reversal. Sentiment still mainly revolves around front-line groups, and no particular sector has shown intraday strength to indicate a direct sentiment reversal. After 1-2 days of recovery, divergence is likely to reappear. We should still expect the index to fluctuate widely, possibly retesting lows, building a bottom, or grinding sideways. So, friends who opened positions today should be cautious tomorrow, as most stocks are likely to find selling points, and I wouldn’t recommend chasing high tomorrow either.

As for the expectation of a sustained trend in a particular sector, we’ll temporarily set that aside and focus on sentiment. Here, we anchor on the concept of consecutive limit-ups. Tomorrow could be a 4 to 5 limit-up day. In a poor overall environment, a 5-limit-up is a sign of a sell-off. Although Silver and Nonferrous Metals hit an 8-limit-up high, that was heavily influenced by accelerated futures trading. The previous peak was 5 limit-ups, so a 4 to 5 limit-up tomorrow will be a pressure point. If three stocks successfully advance to 5 limit-ups, sentiment recovery can continue. But if only one or none succeed, or if all three fail to reach 5 limit-ups, divergence will occur. Even if 4 to 5 limit-ups are achieved, if they are on weak stocks, most stocks will likely look for selling points.

Today was a broad rebound, with no particular sector showing exceptional strength. Even the relatively stronger sectors like commercial aerospace and space photovoltaics only experienced oversold rebounds without the momentum of a full-blown rally. For this to continue, it would need to not only outperform other sectors but also stand out independently when competing with other sectors—an enormous challenge.

In simple terms, tomorrow morning, don’t rush to chase highs. The current sector and trend directions should be temporarily set aside as there are no clear signs of sustainability. The only viable strategy is to focus on the top 1-3 stocks in each sector for front-line groups, as I listed yesterday. I won’t repeat it here. Keep an eye on the top 1-3 stocks in sectors like AI, cloud services, robotics, aerospace, photovoltaics, chemicals, nonferrous metals, etc., and rotate low to buy. Don’t chase the strongest stocks further stronger. The current environment makes it difficult to see stocks becoming even stronger, and volatility is high. It’s easy to get caught intraday if you chase the next day. As for most non-front-line stocks, most of the recovery is a selling point, with only a few able to catch up and form new groups. I don’t recommend paying attention to them.