Rebirth of the Capital Legend

"I really didn't expect that the steel, coal, and non-ferrous metals sectors would be the ones leading the market today." Near the midday close, noticing the performance of the major sectors, Xu Qiao, a member of the "Shanghai Short-Term Trading Group," stared at the screen with obvious surprise. "I had a feeling that these sectors had seen signs of major funds accumulating positions, and sure enough, today, just as the sentiment for the consumer and infrastructure sectors started to wane, these sectors suddenly surged."

"It seems that the results of supply-side reforms are starting to take effect," Lao Zhang replied with a smile. "Thanks to the booming real estate market and the expansion of electricity demand, the steel and coal sectors are beginning to enter a phase of industry restructuring after capacity reduction."

"Isn't it a bit too early to predict a reshaping of the industry landscape?" Lao Wu responded. "Let alone the trend of the fundamentals, the trend of stock price movement hasn't even emerged yet. At present, I think it's more prudent to look at the oversold rebound. As for the reversal... we have to see how sustainable the market trend is, and how the major institutional funds in the market will treat these lines."

"It should be reflected in the third quarter's performance, right?" Xu Qiao said. "If the leading stocks in these sectors start to show sequential and year-on-year performance improvements in the third quarter, that would be a clear signal of a cyclical reversal in the industry. However, there isn't much room for imagination in these sectors. Also, the market's major capital groups and the vast majority of retail investors don't have particularly high expectations for the traditional energy sector. Without solid performance support, it will be difficult to see a reversal in stock prices and an increase in valuation."

Old Wu nodded and continued, "That's indeed the case. The traditional energy sector is not very popular in the market and receives little attention. Relatively speaking, people currently prefer the consumer sector, which has high certainty and is easier to boost valuations."

"So, in the steel, coal, and non-ferrous metals sectors, generally speaking, the reversal in stock prices and the reversal in performance happen simultaneously," Lao Zhang said. "At this point in time, these sectors are showing unusual activity and their performance is consistently stronger than the broader market index. There are obvious signs of major funds accumulating positions. I think that some institutions with sensitive information channels or the ability to conduct on-site research are continuously following up and have already noticed the industry reversal trend."

"Regardless of whether institutional investors are continuously tracking and building positions," Chen said, "On the market, continuous abnormal stock price movements should attract sufficient attention. All the combined effects of capital, news, and fundamentals will ultimately be reflected in the K-line chart. Therefore, frequent abnormal K-line patterns must indicate that some internal factors are changing, which is worth our investigation and attention."

"Brother Chen, are you also starting to be optimistic about the market trend of these sectors?" Xu Qiao asked with a smile.

Chen responded, "Whether I'm optimistic or not isn't important. What matters is the market's reaction. I'll just do what the market does based on its feedback."

"The logic behind the unusual movements in the steel and coal sectors is relatively easy to understand," Xu Qiao continued. "What's the logic behind the continued strength of the non-ferrous metals sector? Looking at the futures prices of various non-ferrous metals, not to mention in the near term, there haven't been any unusual movements in the medium to long term. In fact, the prices of most metals are in a downward trend, and it's clear that the entire precious metals market is still in a bear market. Moreover... the global economic growth outlook doesn't seem very optimistic either. In the medium to long term, there won't be a significant increase in global demand for precious metals. All these factors... cannot support the continued strength of the non-ferrous metals sector."

"There's no necessary correlation between the futures market and the stock market, is there?" Old Wu said.

Old Zhang responded, "Haven't you noticed? Most of the stocks that are showing unusual activity in the non-ferrous metals sector are actually related to the lithium battery sector, which means they are linked to the main line of the new energy industry chain. They have nothing to do with macroeconomic demand or price fluctuations in the futures market."

The fundamental logic is that everyone has overly optimistic expectations for the future of new energy.

Given the expectation that the government will increase subsidies next year.

The mass production of new energy vehicles will accelerate, and the demand for lithium batteries, including lithium carbonate and lithium hydroxide, will increase significantly.

Against the backdrop of rapidly expanding demand in the lithium battery market.

Naturally, all metals related to lithium battery production, such as cobalt and graphene, have become sought after by various funds in the market.

This includes stocks, especially those with substantial high-quality lithium resources both domestically and internationally.

Its recent performance has been significantly stronger than the overall market and other stocks in the sector.

Therefore, I believe that the unusual activity in the non-ferrous metals sector has absolutely nothing to do with the so-called macroeconomic demand for the industry; it is purely due to increased expectations, which is nothing more than speculative sentiment.

Moreover, look at the entire non-ferrous metals sector.

Stocks of precious metal mining companies, such as those dealing in gold, silver, and copper, or smelting and manufacturing enterprises, haven't actually moved much. Companies like Qilu Gold, Baiyin Nonferrous Metals, and Yunnan Copper are still at rock bottom. The only sector showing a clear bottoming trend is lithium battery-related stocks.

"From this perspective, it is indeed easier to understand." Xu Qiao nodded slightly after listening to Lao Zhang's words and said, "Since the non-ferrous metals sector follows the logic of the new energy industry chain, we don't need to look at it much. We can just look at the trend of the 'lithium battery' sector."

Old Zhang nodded and said, "I think so too. Therefore, the core leading stocks on this line will always revolve around stocks such as Tianqi Lithium, Ganfeng Lithium, Tinci Materials, and Do-Fluoride Chemicals. Especially Tinci Materials, I feel that this stock has obviously become a speculative stock. After yesterday's sharp divergence, a lot of internal shares have been accumulated. Today, the stock hit the daily limit, but the trading volume was significantly reduced. This shows that after the sharp divergence, the stock has started to follow a consistent bullish expectation again."

"The price of lithium hexafluorophosphate should be rising again soon, right?" Old Wu asked.

Chen responded, "Based on domestic upstream and downstream quotations, it seems that prices are indeed rising again. The two leading companies in this sector in China are Tinci Materials and Do-Fluoride Chemicals. In the last round of market activity, Do-Fluoride Chemicals' stock performance was significantly stronger, and under the leadership of Su Brothers' 'Fuxing Road' trading seat, it attracted a large number of top-tier speculative funds for concentrated speculation. But in this round... it is clear that Tinci Materials' performance is much stronger than Do-Fluoride Chemicals'."

"This seems to be because Tinci Materials' main business is more focused and its capacity expansion is faster," Lao Zhang said. "Dofluoride's business seems a bit mixed. If the price of lithium hexafluorophosphate continues to surge, its benefit and the magnitude of its performance increase should not be as exaggerated as Tinci Materials' stock."

"Yes, that should be the reason." Brother Chen nodded and said, "The market still prefers stocks with a more focused core business."

"I feel that after yesterday's fluctuations, the main funds have actually become more deeply involved in the new energy industry chain," Lao Wu said. "I feel that the policy guidance this time may really enable a number of leading stocks in this industry to achieve real performance improvement and ultimately realize the mass production of new energy vehicles."

"You know what, I feel the same way," Old Zhang said with a smile. "So this line is definitely worth paying close attention to. If the policy guidance really brings about earth-shattering changes to the entire industry chain, enabling new energy vehicles to be mass-produced and gradually occupying and changing the current car market, and gaining widespread recognition from end consumers, then the scale of this industry and the future potential are truly vast."

"Of course," Xu Qiao said. "The automotive industry is a huge sector, so there's bound to be a lot of room for growth."

"If the logic holds true, the market size it supports should be larger than that of the smartphone industry chain," Chen said. "Analyzing from this perspective, once the logic holds true, some of the core stocks in these lithium battery sectors are very likely to see a large number of stocks increase tenfold or even dozens of times."

"Looking at the future prospects, it's not an exaggeration to say that Tianqi Lithium and Ganfeng Lithium will reach a market capitalization of 100 billion yuan," Lao Zhang said. "No wonder Su's 'Huayi Capital' chose these two stocks as the core targets of the entire new energy industry chain."

"Yes, based on a comprehensive analysis, the strongest sector on the market today was indeed the new energy sector," Lao Wu nodded in agreement. "On the other hand, the consumer and infrastructure sectors cooled down somewhat today, and the pharmaceutical sector lagged behind even more. I'm wondering if these sectors need a period of consolidation?"

Xu Qiao responded, "The consumer and pharmaceutical sectors did show some weakness today, but the infrastructure sector should be doing alright, right? The core leaders in the real estate, construction, and building materials sectors are all performing quite strongly, and new hot stocks are constantly emerging in these sectors. The stratification and hierarchy within these sectors are quite clear, and the overall performance of the sector indices is much better than the major market indices. So, it can't be called weak, can it?"

"Compared to yesterday's, and even the trend of the previous days, it is definitely much weaker," Lao Wu said. "However, overall, the internal chip structure is still relatively stable, and the selling pressure has not increased significantly, but the local speculative sentiment has definitely declined."

"The main issue is that the stock has indeed risen quite a bit in this phase," Lao Zhang said. "Also, today, the stock of Beijiang Jiaojian wasn't performing strongly enough, and it's highly likely to break its limit-up. This has affected the sentiment and speculative expectations of high-performing stocks in the entire infrastructure sector, making many popular high-performing stocks less eager to rise. It has also reduced the willingness of short-term funds in the market to chase this sector. But this is indeed a very normal trend. After all, even the strongest core theme can't keep rising continuously. There will always be a period of pullback to consolidate the chip structure. In fact, as long as we judge that the overall chip structure of this core theme is still stable and the main funds haven't started large-scale concentrated profit-taking and exiting, then we can continue to hold the position, let the profits continue to run, and wait for the next wave of the trend after the adjustment ends."

"Yes, I think so too," Xu Qiao said. "The infrastructure sector is the strongest and most certain market theme in the medium term. Its upward trend is unlikely to end here, so we can just hold our positions and wait. Besides... Brother Su's 'Huayi Capital' has invested at least tens of billions of yuan in this sector, and he's not in a hurry, so why should we?"

"The key is that in the Hong Kong stock market, the entire real estate industry chain, as well as a number of mainland property stocks, are still hitting new highs," Lao Zhang said. "With the support of the Hong Kong stock market, even if the infrastructure sector in the A-share market experiences a temporary correction, the correction will not be very deep. Holding onto your shares, you can completely watch the market go smoothly."

"Haha, 'Laughing at the winds and clouds' is a good phrase," Xu Qiao said. "Anyway, I definitely won't sell the core leading stocks on this line unless Brother Su's 'Huayi Capital' doesn't sell, unless it doubles again in the short term and pushes the sentiment to the extreme, but that's basically impossible given the current overall market volume."

"Don't worry about the trend of the infrastructure sector and the overall market trend." Brother Chen smiled and said, "If the trend remains unchanged, then the short-term fluctuations can be ignored. On the contrary, I feel that the consumer sector is very likely to dig another pit here."

"What do you mean by that, Brother Chen?" Xu Qiao asked.

Chen responded: "I'm not saying there's anything wrong with the underlying logic of the consumer sector. In fact, whether it's liquor, white goods, retail, food and beverage, or consumer electronics, given the premise that my country's economy is growing larger and people's living standards are improving, the medium- to long-term logic is sound."

However, from a short-term perspective...

Along this line, many leading stocks in core industries have over-excited expectations since the beginning of the year.

The large number of major institutional investors who have gathered here have made substantial profits and are not keen to continue pushing the price up.

From the perspective of their internal shareholding structure, these stocks need a proper pullback at this level to clear out internal profit-taking and some floating shares before they can regain upward momentum and continue their trend. Otherwise, given the current heavy burden on these stocks, the existing market funds simply cannot lift them.

This is also the fundamental reason why you've seen many leading stocks in the major consumer sector recently begin to trade sideways, or even experience a counter-trend decline.