[Red Envelope] A panoramic view of the chaotic grand market, hoping you'll be here when opportunities are everywhere!!!

Weekend brings out various pessimistic sentiments, with many voices beginning to criticize quantitative trading! In fact, this kind of criticism, often called the “surrender letter” from retail investors, is not the first time it has appeared. The last time was at the end of 2024, followed by a three-month rebound period during which the index rose from around 3,000 points to 3,400. History has proven that many times, whether due to insufficient understanding or because pessimism is amplified endlessly, the market can rebound. Today, I still want to tell everyone with a faint light: do not let internet rumors set the tone. You should learn to develop your own judgment. [Taogu Ba]

Another common voice is “teach you to hold cash.” Many people will tell you during the most difficult times in the market: “You should hold cash now.” Whether to hold cash or not depends entirely on personal understanding. A saying passed down in the industry is: “Not holding cash means not knowing how to trade stocks.” A trader known as A once said, “Trade more when the market is good, trade less when it’s bad.” But the deeper meaning is: “Trade more when you understand, trade less when you don’t.” Those who have achieved results teach you to hold cash not because the market is bad, but because they cannot understand it. They have their own logic for entering the market. Those who haven’t achieved results often dismissively say, “You should hold cash now.” To be blunt: if they say you should hold cash when the market is bad, does that mean you should go all out when it’s good? Do people really make money when the market is good? Not necessarily! Those who truly make money are based on understanding the market. Of course, a poor environment doesn’t necessarily reduce the probability of successful trading. This leads to another skill called “position management.” So I am not advising everyone to hold cash, nor am I urging you to go all in. I just want to tell everyone to find a rhythm that suits you, learn to sense the strength or weakness of the market, because only then can you remain undefeated in any market.

Last week’s overall rhythm was quite good. The early morning or intraday key comments were very accurate. For example, last Friday, many people said the market was coming, there was resonance, and I immediately clarified that it was not resonance, and advised against chasing highs. I repeated this three times, and ultimately the index fell sharply. Fortunately, many ordinary followers did not get caught like before, thinking they lost everything. I want to tell some followers: since you follow me and recognize that my rhythm is top-notch, it’s best to set a special follow. If you don’t, it’s difficult to see my comments suddenly pop up in the comment section. Could this cause you to be tricked again by Friday’s trap? Speaking of quant strategies, someone will teach you how to deal with quant trading over the weekend. As the only top-tier quant blogger in Taoxian, I advise you not to learn! Why? First, dealing with quant is actually simple. Many quant programs are run by humans behind the scenes—this is the fundamental logic of trading: the game of human nature. Like I’ve been teaching this week: when the wind turns, buy the dips and sell the rallies, and take profits quickly. Why can’t most people do this? Because of human nature—greed and fear. During bullish days, they’re reluctant to sell, wanting more gains, unable to overcome greed; during bearish days, they’re afraid to buy, unable to overcome fear. Recently, the market has been falling in a single direction. I told everyone it would only rise one day a week and fall four days, and shared a traditional bear market rebound strategy: “Grandma’s staircase,” which involves buying at the end of big declines, expecting a rebound the next day. This is why quant strategies have little impact on small funds. Also, quant programs are constantly being adjusted daily, and some are starting to use AI for trading. Ordinary people find it very hard to get involved, and even if they learn, it’s useless. It’s better to honestly seek the underlying logic of the market.

After saying so much, I might still not be able to save those pretending to sleep. Everyone has their own reasons—public opinion is divided, and both sides are right. But in Taoxian, I am the only one who can access truly top-tier traditional funds and quant strategies. Whether to spend limited time on more meaningful things depends on everyone. Returning to the market:

On Thursday, the Shanghai Composite broke below 4,000 points but quickly recovered. The market once thought it was stabilizing, but Friday’s action completely shattered that illusion. The Shanghai index weakened sharply, falling 1.24%, officially losing 4,000 points, wiping out all gains for the year. Meanwhile, the ChiNext index defied the trend and rose 1.3%, and the Shenzhen Composite dipped slightly by 0.25%. The market showed extreme divergence—over 600 stocks rose, nearly 4,800 declined; the median decline was -2.48%. Nearly 4,800 stocks turned red, and the loss effect was at its peak.

The rollercoaster on the market further shattered retail investors’ confidence. In the morning, the ChiNext surged over 3%, but in the afternoon, it plunged rapidly, with fierce battles between bulls and bears. Many panicked during the continuous decline and sold off, as if the flames of the Middle East conflict were being paid for by retail investors in A-shares. But in reality, such extreme conditions are not necessarily bad. The sharp declines caused by external geopolitical conflicts can help clear out margin funds and speculative bubbles, laying the groundwork for future rebounds. Currently, concerns mainly focus on escalating US-Iran conflicts, shaky US stocks, and fears that external issues will interrupt China’s slow bull run or even trigger a global financial crisis. But looking back at history, China’s economy always manages to break through difficulties. Over decades, it has crossed rivers by feeling the stones, surviving many tougher tests than today. Today’s Chinese economy is far more resilient and capable of responding to external shocks, with strong policy tools and industrial potential. There’s no need to be overly pessimistic. According to market laws, retail panic often signals a bottom. During the trade war last year, the market called for a “golden pit,” but when the real opportunity to fall appeared, most people sold in fear and missed the subsequent rebound. Now, with the Shanghai index at this level, panic selling is pointless. Instead, many high-quality stocks are being unfairly sold off.

Regarding the weekend’s hot topic about index breakouts, the core debate revolves around the logic of true versus false breakouts and fake breakdowns. Looking back at the 924 index, during upward phases, breaking out of the box often comes with short-term adjustments, showing that under certain control, breakouts and false breakouts are confusing. Breakouts tend to lure buyers, false breakouts tend to lure shorts. The current market structure has changed significantly, with short-term speculators, quant funds, technical traders, and others involved. Technical traders rely on support levels and line analysis, becoming key targets in market reshuffling. If the index doesn’t effectively break below the left-side lows, these funds may mistake a pullback to key support or double bottom confirmation, waiting passively for a rebound. This was the real scene on Thursday. Over 4,600 stocks declined, but only 5 hit the limit down. Essentially, the market’s expectation of a bottom was driven by false hopes, leading to insufficient selling pressure. Most investors chose to wait and see rather than cut losses. But on Friday, the breakdown shattered this expectation. The double bottom pattern was invalidated, and panic selling surged. Although about 4,500 stocks declined, slightly fewer than Thursday, the number of limit-down stocks jumped to 13. The key difference is that the breakdown cut through the support and line traders’ hopes, triggering a mass exit of stop-loss orders. Normally, the market has an iron law: even if the trend is weak, after three consecutive lows, emotional repair is likely to be triggered. If Monday continues to fall, it will accelerate the bearish momentum and create a short-term rebound opportunity next week.

Finally, I want to share a direction. Last week, using the same approach, we captured the trends in the Shanghai Electric and storage chip sectors. They were the strongest sectors in the first half of the week. Currently, the market is chaotic, with sector rotation accelerating and no clear main line. It’s a contest of whose story is more compelling and whose logic is more coherent. Today, I’ll talk about new energy. In the past, valuation logic for new energy was simple: it was all about economics. The market focused on who had lower costs, higher penetration, and more mature business models. Whether wind and solar could replace thermal power, or electric vehicles could be more cost-effective than fuel cars, was the only standard. But under the current geopolitical tensions and unstable energy supply, this calculation must be re-done. The new valuation logic has shifted: in the short term, new energy may not be the cheapest, but it must be the safest. The value of energy storage is no longer just about arbitrage in peak shaving but has risen to a strategic infrastructure for national energy independence. Its core mission is to cut off reliance on external oil and natural gas, ensuring that the country’s energy lifeline is not controlled by any strait or war zone. This strategic security value cannot be measured by short-term returns. Therefore, the energy storage sector is undergoing a fundamental reshaping of its valuation system.