Where to start
The market has shifted into a downward trend pattern. The key observation metric is when the wealth effect turns positive. In the short term, driven by technical factors and overseas market rebounds, risk appetite is expected to improve, and the rebound may continue. However, since the medium-term pattern has not reversed, a large number of trapped positions will limit the rebound's scope. It is recommended to gradually reduce positions during the rebound, awaiting signals of a pattern change.
Davis Double Play outperformed by 0.22% this week, with a cumulative absolute return of 14.51% for the year. The Net Profit Gap strategy underperformed the benchmark by -0.01% this week, with a year-to-date absolute return of 8.17%. The CSI 300 Enhancement Strategy outperformed the benchmark by 5.47% this week, with a cumulative excess return of 6.89% for the year.
Investment Highlights
Market Overview (Wind All A Index): Downward trend. Valuation Level (Wind All A Index): Medium level. Position Suggestion: 60%. Market Direction: Signals from the timing system show the moving average distance is -4.4%, with an absolute value greater than 3%. The market has shifted from a consolidation pattern to a downward trend. The market has entered a downward trend, and the core observation variable is when the wealth effect turns positive. The current wealth effect value is -3.88%, significantly negative, indicating the medium-term pattern has not changed. In the short term, from a macro perspective, the market has become increasingly immune to the recurring Iran-US conflict. Technically, trading volume has rapidly shrunk below two trillion, suggesting short-side pressure has been largely released. Catalytically, several major events have concluded, and overseas rebounds are favorable for boosting short-term risk appetite. Overall, driven by technical factors and the overseas market rebound, risk appetite is expected to improve, and the rebound may continue. However, since the medium-term pattern has not reversed, a large number of trapped positions will constrain the rebound's space. It is advised to gradually reduce positions during the rebound and wait for signals of a pattern change.
Sector Allocation: Our medium-term sector allocation model indicates that entering August, sector allocation needs to balance valuation and stock price positioning. Key focus areas include non-ferrous metals and AI applications. Regarding short-term event catalysts, the robotics/satellite sectors may see phased opportunities.
Pattern Change, Rebound Continues but Space May Be Limited
Last week, we indicated that the upcoming ChangXin listing, a significant technical volume contraction, and an important domestic meeting were expected to rapidly improve market risk appetite, presenting a buying opportunity. The Wind All A index ended the week with significant volatility, down 0.05%. By market capitalization, the small-cap CSI 1000 index rose 1.14%, the mid-cap CSI 500 index fell 0.51%, the CSI 300 fell 1.31%, and the SSE 50 fell 1.13%. Among CSI Tier-1 industries, media and consumer services led the gains, with media surging 12.77%. Communications and electronics were weaker, with communications falling 10.45%. Regarding trading activity, consumer services and media saw significant capital inflows.
From the timing system, although the market rallied, the distance between the long-term moving average (120-day) and short-term moving average (20-day) of the Wind All A index narrowed significantly. The latest data shows the 20-day line is at 6460, and the 120-day line is at 6761 points. The short-term average is below the long-term average, with a distance difference of -4.4%. Since the absolute distance is greater than 3%, the market has transitioned from a consolidation to a downward trend pattern. The market has entered a downward trend pattern. The core observation variable is when the wealth effect turns positive. The current wealth effect value is -3.88%, significantly negative, meaning the medium-term pattern has not changed. In the short term, the market has become immune to the recurring Iran-US conflict. Technically, trading volume has rapidly shrunk below two trillion, indicating short-side pressure has been released relatively fully. Catalytically, several major events have landed, and overseas rebounds are conducive to raising short-term risk appetite. Overall, driven by technical factors and the overseas market rebound, risk appetite is expected to improve, and the rebound may continue. However, because the medium-term pattern has not reversed, a large number of trapped positions will limit the rebound's space. It is recommended to reduce positions gradually during the rebound, waiting for a signal of pattern change.
In terms of configuration direction, our medium-term sector allocation model shows that entering August, sector allocation needs to consider both valuation and stock price positions. Key focus areas include non-ferrous metals and AI applications. For short-term event catalysts, the robotics/satellite sectors may see phased opportunities. From a valuation perspective, the PE of the Wind All A index is near the 80th percentile, considered moderately high. The PB is at the 40th percentile, considered relatively low. Combined with short-term trend judgment and according to our position management model, the recommended position for absolute return products using the Wind All A index as the equity allocation target is 60%.
Signals from the timing system show the moving average distance is -4.4%, with an absolute value greater than 3%. The market has shifted from a consolidation to a downward trend pattern. The market has entered a downward trend pattern. The core observation variable is when the wealth effect turns positive. The current wealth effect value is -3.88%, significantly negative, meaning the medium-term pattern has not changed. In the short term, the market has become immune to the recurring Iran-US conflict. Technically, trading volume has rapidly shrunk below two trillion, indicating short-side pressure has been released relatively fully. Catalytically, several major events have landed, and overseas rebounds are conducive to raising short-term risk appetite. Overall, driven by technical factors and the overseas market rebound, risk appetite is expected to improve, and the rebound may continue. However, because the medium-term pattern has not reversed, a large number of trapped positions will limit the rebound's space. It is recommended to reduce positions gradually during the rebound, waiting for a signal of pattern change. Our medium-term sector allocation model shows that entering August, sector allocation needs to consider both valuation and stock price positions. Key focus areas include non-ferrous metals and AI applications. For short-term event catalysts, the robotics/satellite sectors may see phased opportunities.
The CSI 300 Enhancement Strategy Outperformed by 5.47% This Week
1. Davis Double Play Portfolio
The Davis Double Play strategy involves buying stocks with growth potential at a low P/E ratio, then selling when growth materializes and the P/E ratio increases. This captures the multiplicative effect of EPS and PE expansion. The strategy achieved an annualized return of 26.45% in the backtest period from 2010 to 2017, outperforming the benchmark by 21.08%. It also demonstrated high stability, with excess returns exceeding 11% in each of the seven full years of the backtest period. This year, the strategy's cumulative absolute return is 14.51%, outperforming the CSI 500 index by 14.13%. This week, the strategy outperformed the CSI 500 index by 0.22%. The strategy was adjusted at the open on May 6, 2026. As of July 31, 2026, the current portfolio has outperformed the benchmark index by 2.24%.
2. Net Profit Gap Strategy
The Net Profit Gap strategy is a stock selection model based on the resonance of fundamentals and technicals. Its two core points are: "Net Profit," referring to earnings surprises, typically meaning performance that exceeds expectations; and "Gap," referring to a significant upward price gap on the first trading day after the earnings announcement, which usually represents the market's recognition of the report and market sentiment. Each period, we screen for stock samples with performance forecasts and official financial reports that meet earnings surprise criteria from the past two months. An equally weighted portfolio is constructed from the top 50 stocks ranked by the magnitude of the gap on the earnings announcement day. From 2010 to the present, the strategy has achieved an annualized return of 29.88%, outperforming the benchmark by an annualized 26.67%. The portfolio's cumulative absolute return for this year is 8.17%, outperforming the benchmark index by 7.79%. This week's excess return was -0.01%.
3. CSI 300 Enhancement Strategy
Based on an attribution analysis of top-performing funds, investor preferences can be categorized into GARP, growth, and value styles. GARP investors seek to buy companies with strong profitability and stable growth potential at relatively low prices. A PBROE factor is constructed using the percentile difference between PB and ROE to find stocks with low valuations and strong profitability. A PEG factor is constructed using the percentile difference between PE and growth rate to find companies with undervalued value and reliable growth potential. Growth investors focus on a company's growth prospects, seeking high-growth stocks through revenue, gross profit, and net profit growth rates. Value investors believe that long-term stock returns are roughly equal to the company's ROE and that the initial purchase price has little impact on the final return. They prefer companies with long-term, stable, high ROE. An enhanced CSI 300 portfolio is constructed based on these investor preference factors, with a history of stable excess returns. The portfolio's year-to-date excess return relative to the CSI 300 index is 6.89%. This week's excess return was 5.47%. The month-to-date excess return is 12.21%.
Important Notice
The content of this article is an excerpt from research reports published by the Zhongtai Securities Research Institute: "Quantitative Timing Weekly Report: Pattern Change, Rebound Continues but Space May Be Limited" (published on August 2, 2026) and "CSI 300 Enhancement Strategy Outperformed by 5.47% This Week" (published on July 31, 2026). Analyst: Wu Xianxing (S0740525110003). Risk Warning: Market environment changes and models based on historical data involve risks. Models are based on historical data and have a risk of failure; changes in market style pose a risk. Important Disclaimer: This subscription account is established by the Financial Engineering Team of Zhongtai Securities. It is not a platform for publishing research reports from the team. The materials contained are excerpted from research reports already published by the Zhongtai Securities Research Institute or subsequent interpretations of those reports. In case of ambiguity arising from the excerpts, the full content of the report as published on that day shall prevail. Please note that this material only reflects the judgment on the day the report was published. The research views may be changed without notice based on subsequent research reports published by Zhongtai Securities. This subscription account assumes no obligation to push updated information or provide further notice. For subsequent updates, please refer to the official research reports published by Zhongtai Securities. The materials, tools, opinions, information, and inferences contained in this subscription account are provided for client reference only and do not constitute any final operational advice for investment, legal, accounting, or tax purposes. Zhongtai Securities and its related research teams do not guarantee any final operational advice based on the content pushed by this subscription account. Subscribers should not rely on the information pushed by this subscription account for specific operations. Subscribers should make their own investment decisions and bear all related investment risks. Under no circumstances shall Zhongtai Securities or its related research teams be liable for any losses incurred by anyone from using the information pushed by this subscription account. Market risk exists, and investment requires caution. Zhongtai Securities and relevant content providers retain all legal rights to the content contained in this subscription account. Without written authorization, no person or institution may modify, reprint, or copy the information pushed by this subscription account in any way. If citation or forwarding is permitted after obtaining the company's consent, it must be done within the permitted scope, with the source attributed as "Zhongtai Securities Research Institute," and the content must not be quoted, abridged, or modified in a way that contradicts the original meaning.
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