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On October 16, A-shares staged a shrinking-volume recovery, with trading volume dropping to 1.57 trillion yuan and 3,301 individual stocks closing higher. News related to Tesla's Roadster lifted flying car concept stocks, while the CRO (Contract Research Organization) sector led the market lower. Interviewees stated that the tech sector currently has a large amount of trapped positions above, and the rebound momentum remains weak. Today is likely the low point of this round of sentiment-driven selling, and the market has at least entered the bottom zone. However, a full bottom still awaits confirmation through the resonance of recovering volume and the stabilization of tech heavyweight stocks. In terms of operations, it is recommended to maintain a 50% to 70% position, adopt a barbell-type allocation approach, avoid chasing highs, and refrain from panic selling.
Military and Auto Sectors Surge
Indices fluctuated within a narrow range throughout the day, with Shanghai outperforming Shenzhen. The Shanghai Composite Index rose 0.24% to close at 3,716.28 points, the ChiNext Index fell 0.39% to 2,772.38 points, and the Shenzhen Component Index dropped 0.12%. The CSI 300 and SSE 50 edged up slightly, the STAR 50 dipped marginally, and the BSE 50 closed down 1.81%. Trading volume shrank by 76.83 billion yuan, with combined daily turnover across the Shanghai, Shenzhen, and Beijing markets dropping to 1.57 trillion yuan. In terms of leveraged funds, as of October 15, the margin financing and securities lending balance across the three markets fell to 2.5 trillion yuan.
On the board, automobiles, aerospace and aviation, flying cars, agriculture, real estate development, and cement performed well, but CRO, innovative medical services, and CAR-T cell therapy plunged sharply, while optoelectronic components and electronic components also weakened. Among the 31 Shenwan Level-1 industries, 22 closed higher. The defense and military industry sector rose nearly 3%, real estate, agriculture, forestry, animal husbandry and fishery, and automobiles gained about 2%, and building materials, petroleum and petrochemicals, building decoration, and steel all rose over 1%. Non-ferrous metals and communications edged up slightly. The media sector fell 2.3%, pharmaceuticals and biologics also weakened, and non-bank financials, electronics, and computers likewise came under pressure.
In terms of individual stock performance, 3,301 stocks closed higher with 61 hitting the daily limit up; 2,128 closed lower with 11 hitting the daily limit down. Among actively traded stocks, Zhongji Innolight rebounded 1.99% to 670 yuan per share, Changxin Technology rose 3.28% to 45.02 yuan per share, while WuXi AppTec closed down 6.6% at 144.3 yuan per share.
Shrinking-Volume Recovery, Not a Reversal
How should today's A-share market action be understood? Pan Jun, investment manager at Cheese Fund, analyzed that today's A-shares exhibited characteristics of intraday pullback after a rally and structural divergence. The market still has some willingness to recover, with capital rotating between high and low positions and hot spots switching rapidly, but incremental capital is insufficient and investors' willingness to chase highs is weak. Overall, the current market has not shown systematic weakening, but previously strong sectors face valuation digestion and profit-taking pressure. The market is in a phase of sentiment repair and risk appetite rebalancing, and short-term consolidation is still needed to accumulate upward momentum.
"Today's candlestick represents a shrinking-volume recovery, not a reversal," said Tong Diyi, Chairman of Longying Fuze Asset, bluntly. The typical characteristics of today's market are stable indices, weak individual stocks, and insufficient volume. Behind the sharp sector divergence lie three layers of logic: First, safe-haven rotation under stock-game dynamics. With long-end U.S. Treasury yields at highs and oil prices elevated, inflation stickiness is reinforced, growth stock valuations are under pressure, and capital is withdrawing from previously crowded tracks such as AI (Artificial Intelligence) hardware, PCB (Printed Circuit Board), and CRO, shifting toward directions with event catalysts. Second, event-driven dominance. The Zhuhai Airshow scheduled for December ignited the military and low-altitude economy sectors, Tesla's Roadster boosted flying car concepts, and detailed rules for commercial housing sales reform landing in seven cities propped up real estate — these are visible catalysts, not fundamental turning points. Third, the sentiment bottom is being ground out. Late-session broad-based ETF volume expansion, the central bank's net liquidity injection this week, and a密集 wave of buybacks and shareholding increases indicate that there is capital absorption below 3,700 points, but absorption does not equal offensive willingness. The signal is clear: downside space is capped, upside slope is limited, and the market has entered a bottom-grinding phase.
"After continuous volume contraction, the market finally saw volume expansion this week, indicating that panic sentiment has clearly surfaced," Xia Fengguang, investment manager at Rongzhi Fund, told reporters. Internal and external factors are resonating to suppress market risk appetite. Internally, tail risks in the dual-innovation sectors that led gains earlier this year — optical modules, PCB, and semiconductors — are accelerating their release. Externally, sharp adjustments in Japanese and Korean stock markets and synchronized sell-offs in global tech stocks have transmitted sentiment to A-shares. Cheng Tianyi, senior researcher at Qingdao Anzhi Investment, stated that today's rebound is an oversold recovery: on one hand, the index had fallen significantly and rapidly in the prior period, with the tech sector particularly hard hit. Combined with external shocks such as the sharp drop in Korean stocks and the U.S. September CPI exceeding expectations, which raised rate hike expectations, market sentiment was pushed to extremes, accumulating strong technical rebound momentum. On the other hand, late-session broad-based ETF volume expansion yesterday, some capital providing contrarian support, and the approaching Q3 earnings season — with some tech names posting impressive results and multiple companies collectively proposing buybacks — multiple positive factors resonated to jointly trigger today's oversold rebound.
Chen Jiande, General Manager of Tianlang Fund, said that both markets rose broadly in early trading today, but the leaders were not tech stocks, and the rebound momentum was relatively weak. Capital instead chose to position in directions with less selling pressure, such as commercial aerospace. Currently, a large amount of trapped positions has accumulated above the tech sector, leaving insufficient rebound momentum; meanwhile, non-tech sectors have not yet formed sufficient appeal to gather market capital consensus, and hot spot rotation is relatively fast.
Xia Fengguang further analyzed that during the market decline, ETF trading volume significantly expanded. On Thursday and Friday, broad-based ETFs saw large-scale net subscriptions with considerable capital volume, strongly supporting the index. The Shanghai Composite Index narrowly held the 3,674-point level. This level is the landmark position of the 2024 "924 rally." Although indices such as the SSE 50 have long broken below this level, the Shanghai Composite Index carries stronger market symbolic significance. Large capital entering near this level is viewed by the market as a positive signal. In his view, the operating levels of institutional capital stabilizing the market during extreme euphoria or panic phases often carry deep implications worth investors' attention.
After more than three months of sustained adjustment, market crowding has been fully rebalanced; Q3 earnings pre-increases combined with listed company buybacks are expected to provide support for the market. The sharp decline phase may be nearing its end, and the market has likely entered a phase of bidding farewell to panic.
Bottom Confirmation Expected in Mid-to-Late October
Given the recent synchronized weakening of A-share volume and price, when will the market bottom out? What variables need to be closely watched in the short term, and how will next week's market play out?
Regarding timing, Hu Mohan stated that a complete market bottom is highly likely to be confirmed in mid-to-late October. Today is probably the low point of this round of sentiment-driven selling, and the market has at least entered the bottom zone; however, a true bottom still requires verification through the resonance of volume expansion and the stabilization of tech heavyweight stocks.
Cheng Tianyi proposed that the market still has rebound expectations, but the prior sharp decline has damaged the chip structure, and the rebound is unlikely to happen overnight — it will more likely take the form of consolidation and repair. Short-term focus should be on the October 19 Financial Street Forum and whether substantive policies land, which will become the core catalyst for a rebound.
"The current market is clearly oversold. This round of adjustment is more about sentiment venting and concentrated risk release; fundamentals have not deteriorated," analyzed Hu Mohan, investment manager at Mingze Fund. On one hand, rising overseas rate hike expectations triggered adjustments in external markets, with sentiment transmitting to A-shares. On the other hand, there was a large accumulation of profit-taking positions from earlier, and consecutive market adjustments exacerbated sentiment fluctuations, triggering negative feedback and leading to concentrated selling pressure. The dominant factor in this round is sentiment. After sentiment is fully cleared, the probability of a bottom rebound increases. Late-session broad-based ETF volume expansion and absorption reflect long-term capital's contrarian positioning; sentiment indicators and oversold indicators have simultaneously fallen to low levels, which from historical patterns often corresponds to the final phase of risk release.
Chen Jiande judged that short-term further sharp declines are limited, rebound opportunities exist at any time, and the market is gradually entering the strike zone. A-shares are expected to consolidate and build a bottom in the 3,700-3,800 point range in the short term. ETF capital is building positions in batches, both maintaining market stability and helping the market grind out a bottom. At this stage, it is recommended to focus on targets with Q3 earnings exceeding expectations.
"Next week, A-shares are expected to remain dominated by consolidation and structural rotation. The probability of a sustained one-sided rally in the short term is not high, but the risk of further significant declines is also relatively controllable," Pan Jun analyzed. After recent adjustments, valuation pressure on some growth sectors has been partially released, and the market still has a foundation for rebound; however, continuously shrinking volume indicates that capital risk appetite has not yet significantly recovered, and the sustainability of the rebound still needs observation.
Pan Jun believes it is important to note that next week will see the release of Q3 GDP and September major economic data, combined with the密集 disclosure period for listed company Q3 earnings. The strength of macroeconomic recovery and corporate earnings realization will become important influencing factors for the market. If economic data meets or exceeds expectations and market turnover expands again, the index is expected to gradually stabilize and recover; otherwise, the market will likely maintain range-bound consolidation, with structural opportunities significantly stronger than index performance.
Tong Diyi stated that under the baseline scenario, the market maintains range-bound consolidation with internal structural rebalancing, and the core observation range for the Shanghai Composite Index is 3,670-3,750 points. Three major variables determine the subsequent direction: First, the Financial Street Forum held from October 19-22, where the central bank, financial regulator, and securities regulator will collectively speak. If reserved incremental policy tools land, it will boost market sentiment. Second, the concentrated Q3 earnings disclosure window, where performance will become the core of pricing. Targets with disproven logic or earnings below expectations will be abandoned by capital, while directions with realized prosperity will gain group-hugging. Third, overseas factors — U.S. Treasury rates, oil prices, and the Federal Reserve's policy path — remain constraints on the height of this rebound. Technically, the index needs to stand above the 5-day moving average and recover the 3,750 gap with volume to be considered formally stabilized; before that, the market action is merely an oversold recovery, with a high probability of pulling back after rallying.
Don't Chase Highs, Don't Panic Sell
How should investors position themselves going forward? Cheng Tianyi recommends focusing on two main lines: first, directions that were previously oversold and have significant room for sentiment recovery; second, directions with Q3 earnings verification and strong fundamental certainty, participating in the rebound with performance as the anchor and a balanced offense-defense approach.
Tong Diyi recommends maintaining a 50% to 70% position, adopting a barbell-type allocation, and insisting on not chasing highs or panic selling. On the defensive side, allocate dividend assets as the base position — banks, power, utilities, and other high-dividend varieties have low volatility and can withstand turbulence. On the offensive side, focus on two types of opportunities: one is tracks where Q3 prosperity can be verified, including optical modules, storage, semiconductor equipment, power grid equipment, and some chemical resource products, waiting for pullbacks to build positions in batches. The other is military, low-altitude economy, and flying car sectors with clear policy catalysts and recent gains — these are only suitable for buying on dips, not chasing limit-ups. The day after a sector-wide limit-up wave is often a profit-taking window.
Tong Diyi believes three types of targets should be avoided: high-level thematic stocks lacking earnings support, CXO and AI application peripheral targets with damaged logic, and small-cap stocks approaching lock-up expiration and reduction windows. In terms of trading discipline, a single stock position should not exceed 20% of the total position; if a target breaks below key support, reduce the position first and observe, then consider adding back after a volume-expanding bullish candle confirms stabilization.
Regarding holdings, Hu Mohan does not recommend further reducing positions. Adopt a balanced offense-defense approach: on the defensive side, allocate high-dividend assets; on the growth side, focus on core tech growth assets whose cost-effectiveness has significantly improved after this round of adjustment, with emphasis on directions where Q3 prosperity is realized. He also calls on large institutions to adhere to long-termism, not be swayed by short-term market sentiment, to position on dips at current levels, and to block the negative feedback loop of sentiment and liquidity-driven selling as early as possible to prevent systemic risks.
"Maintain a neutral position, prioritize optimizing portfolio structure and improving the cost-effectiveness of holdings. In a shrinking-volume consolidation market, absolutely avoid blindly chasing rallies or significantly adding to positions."
Regarding allocation directions, Pan Jun recommends: First, favor quality growth assets with medium-to-long-term industry trends and strong earnings certainty, focusing on AI computing power industry chain, semiconductors, innovative drugs, and other directions, but with greater emphasis on the matching degree between valuation and future profit growth, prioritizing leading companies with orders and earnings that can be continuously realized. Second, moderately allocate varieties with fundamental support such as non-ferrous metals and quality high-dividend assets to improve portfolio balance and volatility resistance. Third, avoid chasing short-term rapidly pulled-up thematic sectors, while quality targets whose fundamentals have not substantively changed but have been significantly dragged down by sentiment alone can be selectively built in batches based on Q3 earnings performance. Overall, take fundamentals as the core, control portfolio concentration, retain certain liquidity, and uncover medium-to-long-term investment opportunities amid market volatility.
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