The Shanghai Composite Index closed higher for a fifth consecutive session on Monday, continuing its push toward the critical 4000-point level. The benchmark index briefly dipped in afternoon trade to fill a gap, before recovering to close near the day's high, just shy of the 250-day moving average.
The Shenzhen Component Index experienced more volatility, dipping below its 5-day moving average before buying support emerged, allowing it to eke out a modest gain. By the close, the Shanghai Composite stood at 3966.59 points, up 0.67%, while the Shenzhen Component Index settled at 14,316.96 points, up 0.04%. The ChiNext Index fell 0.73% to 3537.21 points, and the STAR 50 Index dropped 0.36% to 1737.77 points.
As the rally matures, the market is beginning to show signs of divergence. Trading sentiment is becoming more cautious, with total turnover on the Beijing, Shanghai, and Shenzhen markets reaching 2.54 trillion yuan, a contraction of nearly 150 billion yuan from the previous session.
On the sector front, hotel and catering, aquaculture, and healthcare stocks led the gains, each rising more than 4%. On the downside, telecommunications equipment, glass and fiberglass, insurance, and electronic components were among the weakest performers.
Despite the slower pace of the index rally, individual stock participation remained robust. Nearly 4,100 stocks advanced, with 103 hitting the daily upper limit, while fewer than 1,400 stocks declined.
Looking at brokerage views, the overall tone is cautiously optimistic. CSC Financial Co., Ltd. noted that a "W-shaped bottom" has formed in the market, with previous concerns alleviating and a repair rally unfolding as expected. Historical experience suggests the overall rebound period is still relatively short, with the recovery magnitude reaching about half of the historical average, indicating that August could see a continuation of the repair trend.
China Merchants Securities Co., Ltd. pointed out that unexpectedly weak U.S. employment data has dampened expectations for rate hikes, leading to a recovery in global risk appetite. Last week, the activity of margin trading funds on the A-share market increased, and the market is transitioning from ETF-supported buying to margin financing, which is expected to continue to see net inflows. Looking ahead, market sentiment is likely to gradually warm, paving the way for a renewed upward trend.
Overall, after the sharp correction in July, the window for an A-share rebound has opened. However, after a sustained rally, short-term volatility is likely. Chen Yuheng, a senior investment consultant at Jufu Investment Advisory Co., Ltd., stated that from a technical and positioning analysis perspective, this week's consolidation is a necessary process for the rally to gather strength. Since the oversold bounce began, the technology sector has seen a significant recovery, and the index is approaching a key annual resistance level. Furthermore, there is a dense concentration of overhead supply near the 4000-point mark on the Shanghai Composite, with technical selling pressure building. Against this backdrop, profit-taking from early buyers and selling by those who were locked in at higher levels will trigger short-term volatility and rotation.
"Overall, this week will likely be a key time window to determine the quality of this oversold rebound," Chen added. While the market retains some upward momentum in the short term, the combination of multiple pressures is showing signs of weakening upside momentum. Pullbacks and wide-ranging fluctuations are expected to become more common. The market style is transitioning from a single-minded focus on technology stock recovery to a more balanced rotation between performance and valuation, with multiple themes becoming the main feature of the next phase.
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