To The Moon

Today, all three major A-share indices closed higher. The Shanghai Composite Index rose 0.33%, while the Shenzhen Component Index and the ChiNext Index gained 3.25% and 5.64%, respectively. Market turnover exceeded 2.2 trillion yuan, expanding by over 200 billion yuan from the previous session. More than 3,600 stocks advanced, with the median gain at 0.98% and the average stock price index climbing 4.06%.

As noted earlier, Tuesday's session was crucial for observing whether the market could break above last Friday's high. While the index did not surpass that level today, the market environment significantly improved. The primary driver was a sharp rebound in the two major market themes, with core stocks displaying an institutional 'bulldozer' rally pattern. The market is currently in a rebound cycle, and several positive signals have emerged.

First, following the small-cap index hitting a new high since July 21, both the CSI 1000 and CSI 2000 indices have also reached their highest levels since that date. Breaking through the range-bound consolidation suggests the market is turning favorable. Even if subsequent pullbacks or consolidations occur, they are unlikely to disrupt the broader trend. Second, the SSE 50 Index has been correcting for nine trading days. As previously discussed, institutional support typically stabilizes large-cap stocks first, before moving to mid-cap and small-cap names. The combination of the SSE 50's pullback and the breakout in the CSI 1000 and CSI 2000 signals a significant strengthening of internal market momentum.

Third, the ChiNext Index has broken above its downward trendline that has been in place since July, marking the first such breakout in this correction cycle. Furthermore, the current position of the ChiNext Index resembles the situation in March 2021. From mid-July 2020 to mid-December 2020, the index traded sideways before launching a major rally, which was followed by a correction back to the pre-rally launch point. Similarly, from September 2025 to March 2026, the ChiNext Index traded sideways for over six months, rallied sharply in April 2026, and has now corrected back to near the launch point of that rally. For the ChiNext Index, a period of base-building consolidation, mimicking the March 2021 pattern, would be a healthier development after its steep decline.

Fourth, the STAR 50 Index's performance over the past three days mirrors the Shanghai Composite Index's trajectory from July 6 to July 9, 2015. In both cases, the index gapped up on positive news, sold off sharply, and then showed signs of exhausted selling pressure. In summary, the Shanghai Composite Index is in a rebound cycle, and the key question is whether it can break above last Friday's high. A successful breakout would provide a significant boost to market sentiment.

Today, AI hardware core stocks exhibited an institutional 'bulldozer' rally, coupled with a strong rebound in the ChiNext Index. This suggests that even if the market consolidates, there will be favorable trading opportunities. On the defensive side, the 'value' sectors saw notable declines, including blue-chip, high-dividend, and value-oriented stocks such as banks, insurance, telecom operators, engineering machinery, liquor, and power utilities. Many of these sectors showed signs of stagnation yesterday. The sharp drop in the banking sector today further confirms that market leadership is shifting back to growth themes. The divergence in the relationship between the banking sector index and the Shanghai Composite Index during market inflection points since 2024 is a pattern worth examining.

In the AI hardware and upstream sectors, communication equipment, electronic components, and semiconductors led the gains. Analysts draw parallels to the March 2021 period, where core stocks of the main themes, such as Contemporary Amperex Technology Co Ltd and Sungrow Power Supply Co Ltd, doubled in value after their correction ended. Core AI hardware stocks are the most likely to hit new highs; if they fail to do so, the entire sector's upside potential will be limited. As of 18:15, the US optical communications sector saw significant pre-market gains, with Corning Inc up over 7%, Coherent Corp up over 12%, Lumentum Holdings Inc up over 10%, and Applied Optoelectronics Inc up over 11%.

In AI applications, indices for software, internet, media, entertainment, and advertising packaging all recorded gains exceeding 1%. The recent strength in AI applications is attributed to several factors: the relative weakness in AI hardware and semiconductors, the oversold nature of the AI application sector, and the accelerating cloud business growth at Alphabet Inc, Amazon.com Inc, and Microsoft Corp. Compared to the rally in January this year, the current logic supporting AI applications is more robust, primarily due to the third factor. While AI applications are worth watching, the sector's weak earnings outlook makes it more speculative in nature.

Wanlian Securities believes the global AI industry is poised to accelerate from the early 'high investment, strong expectations' construction phase to the commercialization and large-scale deployment phase. On the news front, Palantir Technologies Inc reported second-quarter revenue growth of 94% year-over-year, exceeding market expectations. The company also raised its full-year guidance, with full-year sales forecast to reach up to $81.6 billion, versus the consensus estimate of $77 billion. Operating profit guidance was set at $48.9 billion to $49.1 billion, above the highest market estimate of $44.5 billion.

In the pharmaceutical sector, the CXO segment surged today following an industry leader raising its full-year guidance. The rally broadened to multiple sub-sectors within healthcare. Guotai Junan Securities noted that as new molecules enter the commercialization phase, they are optimistic about the rapid penetration rate increase driven by the global competitive advantages of Chinese companies. For export-oriented CXO, peptide/small-molecule GLP-1-related supply chains are providing structural growth. As peptides expand into more therapeutic areas and new modalities like ADC and small nucleic acids enter commercialization, the conversion of clinical-stage projects to commercial-stage projects is expected to drive consistent earnings performance for export-oriented CDMO. For domestic CXO, order books are recovering ahead of revenue, and a recovery in the domestic CRO supply chain is anticipated. As domestic investment and financing gradually improve, Biotech R&D demand is rebounding. Domestic CXO order books are recovering year-over-year, and earnings are expected to materialize over time as orders are fulfilled.

Turning to today's post-market news: First, the mandatory national standard for 'Intelligent Connected Vehicles - Autonomous Driving System Safety Requirements' was officially released, scheduled to take effect on July 1, 2027. The standard stipulates that Level 3 autonomous driving systems must include a driver takeover capability monitoring function. Second, the People's Bank of China will conduct a 500 billion yuan outright reverse repo operation tomorrow using a fixed quantity, interest rate tender, and multiple-price bidding method, with a term of 3 months (92 days). Third, China Securities Depository and Clearing Corporation data shows that 139,400 new accounts were opened for margin trading and short selling in July, up 12.78% year-over-year but down 22.12% month-over-month.

In conclusion, the ChiNext Index has broken the stalemate with a medium-sized yang line. While the possibility of further consolidation remains, the market environment has demonstrably improved, and the trading experience should gradually enhance. Key areas of focus include AI applications, securities, CXO, oversold high-quality AI hardware stocks, and companies with strong first-half earnings reports.

Disclaimer: This article is for reference only and does not constitute investment advice. Investors should be aware of the risks of entering the market.