A-share indices posted a collective gain, with the Shanghai Composite edging up 0.32%, the Shenzhen Component rising 1.09%, and the ChiNext Index advancing 1.49%. The STAR 50 and the Kechuang 50 increased by 0.23% and 1.61%, respectively. Total market turnover reached 2.17 trillion yuan, contracting by 168.4 billion yuan from the previous session, while over 4,100 stocks closed higher.
Leading sectors included real estate (core stocks), optical fiber, CPO, communication equipment, and education (core stocks). On the downside, oil and gas extraction, combustible ice, and coal mining and processing sectors lagged. On the index front, the A-share market has shifted into a sideways consolidation pattern, with the 250-day moving average serving as a key resistance level. The focus is on the potential formation of a head-and-shoulders top, with the dual-venture indices showing high correlation with the broader market.
Overall, after five consecutive positive sessions, the 250-day moving average (the annual line) has become a critical watershed for the Shanghai Composite. The index is consolidating sideways to build momentum, hampered by a sharp decline in trading volume, which has weakened upward drive. Resistance levels are dense: the annual line is near the 3,970-point mark, a downward gap exists between 3,983 and 3,985 points, and the left shoulder high is around 4,034 points. For the index to break through these layers effectively, daily turnover would need to expand above 2.5 trillion yuan, a challenging threshold given current conditions.
Caution is warranted, as the market may be forming a head-and-shoulders top. If confirmed, upside potential would be limited, with the right shoulder likely struggling to reach the left shoulder's level, further compressing future gains. However, it is premature to confirm this pattern based on just two to three trading sessions. The 5-day moving average currently provides support, and the short-term uptrend remains intact. But if the 5-day moving average is breached, the short-term trend would weaken significantly, raising the risk of a head-and-shoulders formation.
The dual-venture indices are in sync with the main board, with the left shoulder acting as a key resistance. However, their overall performance is weaker, as they remain some distance from the left shoulder high. We believe that whether the tech sector, represented by these indices, can regain strength may be a key variable for the broader market's breakout.
At the sector level, a mix of overseas news is driving activity. The optical communication (core stocks) sector has strengthened, while the North American computing power (core stocks) chain is outperforming. The focus should be on the market's repricing of computing infrastructure. Today, the optical communication theme gained traction, driven by three overseas developments: First, NVIDIA partnered with six major financial institutions to push for over $500 billion in AI infrastructure financing, sparking widespread debate about the "circular financing" model, prompting Jensen Huang to issue an urgent response. Second, US AI cloud leader CoreWeave reported earnings significantly above expectations, leading to a more than 16% surge in after-hours trading. Third, rumors circulated that Lumentum's views suggested the probability of a broad FCC ban on optical modules is extremely low.
Specifically, as cloud giants like Google and Microsoft show signs of capital expenditure fatigue, NVIDIA is trying to leverage standardized products to attract more financial resources to bolster computing power (core stocks) infrastructure, a move that has drawn comparisons to subprime lending risks. Meanwhile, cloud services, a core part of the US AI ecosystem and a downstream player to NVIDIA, also act as a "seller of picks and shovels." CoreWeave's strong performance has reignited market optimism about the continued expansion of computing power (core stocks) infrastructure, directly benefiting the North American computing power chain, represented by optical communication (core stocks). Moreover, given Chinese manufacturers' clear competitive edge in optical modules, a full ban on Chinese imports would be detrimental to the US, facing widespread opposition from tech giants, and the FCC lacks the enforcement authority to implement such a ban.
We believe the broader trend of the AI industrial revolution is undeniable. However, in the short term, stock prices are driven by capital flows, while the long term will ultimately reflect industrial trends. When market risk appetite is high, positive news is often priced in while negatives are downplayed; conversely, during risk-off periods, negative factors are amplified. Currently, the North American computing power (core stocks) chain, represented by optical communication (core stocks), has seen a substantial rebound from its lows. As the ChiNext Index enters a sideways consolidation phase, the interplay of bullish and bearish news reflects the market's and capital's indecision.
At this stage, rather than predicting short-term movements, it is more prudent to closely observe the nature of the consolidation—whether it forms a reversal pattern or a continuation phase. If the index breaks upward, it would be a signal to firmly go long, as accumulated positive factors could rapidly price in. Conversely, if it breaks downward, it would warrant decisive stop-loss actions, as suppressed negative factors may accelerate their release. [Note: Market risks exist; investments require caution. Under no circumstances does the information or opinions expressed on this subscription account constitute investment advice. Unless otherwise noted, research data is supported by Tonghuashun iFinD.]
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