To The Moon

Where to Begin

On August 13, the market experienced a rally that faded by the close, with all three major indices ending in the red. By the closing bell, the Shanghai Composite Index fell 0.5%, the Shenzhen Component Index dropped 0.87%, and the ChiNext Index declined 0.45%.

Sector-wise, the pharmaceutical sector showed active performance, the computing power leasing concept maintained its strong momentum, the food and beverage sector became active again, the supernode concept strengthened in volatile trading, and the power sector rallied in the afternoon. On the downside, the precious metals sector saw adjustments. A total of over 4,300 stocks across the market fell. The combined trading volume of Shanghai and Shenzhen markets reached 2.55 trillion yuan, an increase of 398.5 billion yuan from the previous trading day.

Why the Sudden Shift?

It's a Thursday, often referred to as a "cash-out day," and typically investors expect some market adjustments. Contrary to expectations, major indices opened with a gap-up and traded in a volatile range for most of the day, stubbornly holding the gap. However, in the final 30 minutes, the market experienced a sharp decline, filling the intraday gap and trapping many investors who had added positions during the session. What happened here?

On the news front, there was no clear negative catalyst as of press time. Given the increased volume in the final stretch, it appears that a surge of funds chose to cash out and exit, catching buyers off guard and leading to a broad-based market decline. Typically, if the panic proves to be "unfounded" or merely a capital-driven move, the sharp sell-off won't last long. Conversely, if it's more than that, it could signal a period where investors need to "hold steady," and we can only watch and wait.

Two Counterintuitive Strength Signals

Before the late-day plunge, the market showed two "counterintuitive strengths" that are now reduced to one. The first was that tech stocks opened higher without immediately falling sharply. Overnight, the US market saw a surge in optical communication and memory chip stocks, boosting global sentiment. In this context, the ChiNext and STAR 50 indices often open higher in tandem. However, the path after the open is uncertain. Investors who believed in the "high open equals sell-off" pattern, especially after a positive day, likely avoided several intraday plunges in July, such as on July 6, 10, 15, and 31. But entering August, tech stocks have stabilized and risen, with high opens leading to more moderate declines. For example, on August 7, the ChiNext and STAR 50 indices' high open sell-off lasted less than 20 minutes before turning upward. So, for most of today, tech stocks showed strength. However, given the significant late-day drop, the "counterintuitive strength" is now questionable, warranting caution.

The second "counterintuitive strength" was seen in the pharmaceutical sector, led by innovative drugs. On Wednesday, Baihua Pharmaceutical, which had achieved seven consecutive limit-up moves (the current highest streak), saw funds "fleeing" at the close and subsequently issued a warning about abnormal volatility. This suggested an impending divergence in the sector's limit-up streak. As a result, early Thursday, several sub-sectors within pharmaceuticals opened lower and briefly dipped. Baihua itself also traded in deep water initially. But as observed, the pharmaceutical sector quickly reversed to a gain, peaking around midday, and then moderated with the broader market in the afternoon, retaining its gains and emerging as a "defiant leader." An institutional source noted that this round of innovative drug rally is led by the CXO segment, driven by order growth and earnings surprises from leading companies, which have revised industry sentiment upward. Currently, the pharmaceutical sector is not yet in an overvalued zone, and under the capital rotation logic of "tech volatility, pharma relay," innovative drugs, as a prime choice for high-risk assets, hold strong allocation value.

Cover image source: AIGC

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