Yesterday, the A-share market staged a short squeeze, causing many sideline funds to panic and rush to join the market. The A-share market quickly increased in volume in the morning, and the market sentiment, which had just experienced a day of divergence, turned highly unified again. Buying during divergence and selling during consensus are common practices. The high congestion in the short term usually triggers a technical correction. Since the rebound of A-shares this round, a huge amount of profit-taking has accumulated, and a large amount of capital has cashed out on the back of high bullish sentiment.

In addition, there are some rumors that have intensified market panic:

According to a report by Securities China, a message about "the resumption of previously suspended quantitative strategies" has also spread among the public. So, is the news true? Securities China reporters have sought confirmation from industry insiders, who have not heard of this and have not received any corresponding notices. The relevant policy arrangements should continue for some time. Some securities industry analysts believe that this possibility is not high, as the market is about to enter an important meeting period, and any market fluctuations caused by this would be inappropriate.

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Furthermore, there are regulatory news about DMA circulating in the market, with the specific content being: only proprietary capital operations are allowed, and funds raised are to be gradually retired (no renewal after contract expiration). Leverage cannot exceed 1:1.

Finally, there are also rumors that institutions have relaxed net selling. In any case, the rumors that led to the sharp drop in A-shares before the holiday are still being discussed.

Before the holiday, due to the snowball effect of products, margin calls, and the disconnection of quantitative trading lines, a liquidity crisis occurred, leading to a thousand stocks hitting the daily limit down. The national team increased its efforts to buy in, and it was not easy to resolve the liquidity crisis. Who would have thought that quantitative traders and retail investors did not learn from the experience, and after the holiday, they started to speculate on small-cap stocks again. The CSI 2000 Index has risen nearly 20% since the holiday, and stocks like Kelai Electric have been wildly speculated on. After the high congestion of small-cap stocks, there was a stampede today. Quantitative trading is really a cancer in the A-share market, and then some retail investors who lose money really deserve it. They do not take the right path, and since these investors treat A-shares as a casino, the A-share market will naturally harvest these investors.

We specifically reminded everyone in the review article on Monday that the national team has not been buying CSI 1000 ETF and CSI 2000 ETF after the holiday. The rebound of small-cap stocks is mainly driven by quantitative repositioning and retail speculation. The CSI 2000 ETF has already been redeemed, and the rebound is nearing its end. It is not advisable to blindly invest in small-cap stocks. Previously, Li Bei reminded everyone not to "go back to the fire scene," and was ridiculed, but we said at the time that we agreed with Li Bei's view.

Some people also said that today's huge volume was the national team selling high, which is completely nonsense. The holding period for purchases by Central Huijin is usually longer, and in such a key year, boosting market confidence through stock market gains is a very important means. Haven't you noticed that the voices of "deflation theory" have diminished a lot after the recent rise? In fact, when the panic selling hit the market at noon today, Central Huijin started to buy a large amount of HS300 ETF to support the bottom, but the main decline was in small-cap stocks, while Central Huijin bought large-cap stocks, which did not play a hedging role. Central Huijin is suffering! It's not easy to solve the liquidity crisis, and the market starts to mess up again, and now it's up to Central Huijin to clean up the mess.Let's take a look at the market situation. As of the close, the Shanghai Composite Index fell by 1.91%, the ChiNext Index fell by 2.51%, the Hang Seng Index in Hong Kong fell by 1.46%, and the Hang Seng Technology Index fell by 2.23%. Today marks the first significant divergence and major turnover since the start of this rebound, leading to a massive trading volume in A-shares, with the volume exceeding 1.3 trillion yuan, an increase of 36.66 billion yuan compared to yesterday. Over 5,000 stocks declined across the two markets, with more than 300 stocks hitting the lower limit, and over 1,000 stocks experiencing a drop of more than 9%. There were numerous instances of stocks plummeting from their peaks.

However, today's northbound capital still made a small net purchase of 1.34 billion yuan, and they were bottom-fishing at the end of the day. Our view from yesterday remains unchanged; central financial institutions, foreign capital, and insurance funds continue to maintain a buying trend, and there is still room for leveraged funds and private equity to add positions. Today's sharp decline in A-shares is more due to a technical adjustment triggered by overly uniform sentiment. You can look back at the bull market at the beginning of 2019; a market trend will experience multiple significant divergences, and today is only the first time. More fluctuations are beneficial for a healthier market rise. Of course, the premise is that the policies from the Two Sessions should not fall below market expectations.

We remind everyone for the last time, after three years of a bear market, blue-chip stocks in A-shares have advantages in terms of valuation, share structure, and profit cycle. Everyone should take this opportunity to embrace value again, rather than speculating in junk stocks. Before the Chinese New Year, we provided four clues: dividend stocks (central and state-owned enterprise reforms), the consumption recovery line, the real estate chain, and AI and other high-tech sectors. We still have a positive outlook on these areas. You should choose stocks with logic and performance, not just those that are riding on concepts. People need to learn from past experiences and not keep making the same mistakes. Li Bei wrote today, "Buddha helps those with a predestined relationship," and we want to say, "Buddha does not help fools."

Risk Warning:

The stock market involves risks, and investment should be approached with caution. This article does not constitute investment advice, and readers need to think independently.