Market Rhythm Through the Lens of War: A Framework for Buying the Dip After Panic

Last Sunday, I discussed the three stages of conflict. From the review of the Russia-Ukraine war, we can conclude: [Tougu Ba]

The first stage: the index declines, energy stocks rise; the second stage: the index declines further, energy stocks turn down; the third stage: negotiations begin, a buying point for gold appears.

Based on last week’s performance, a hellish level of difficulty has emerged, with chaos and disorder. From the number of red days clearly seen last week, what does the market look like moving forward?

Macroeconomic issues: three points

First, including but not limited to any news released by Caixin about the so-called easing of passage through the Strait of Hormuz. The deeper meaning behind this is not convenient to elaborate here. Just watch when crude oil finishes its high-level sideways trading, or you can also watch gas station oil prices.

Second, Goldie (the US dollar) cannot afford to drag on. It must quickly find a way to get to the negotiation table. Otherwise, the longer it drags, the more unfavorable it is for it. Don’t anchor on the US stock market; instead, anchor on the 10-year US Treasury bonds.

Third, domestic quantitative strategies are quite foolish, but recently they are also losing money. The reason for the decline lies in point two above: US Treasuries, which determine global liquidity.

Technical outlook: After a panic week, here is the conclusion: although the Shanghai Composite Index’s 20-week moving average has broken down, the upward pattern has not changed so far. 4197 is seen as the end point of the upward three-wave pattern. At this point, a four-wave correction is underway. After the four-wave ends, there will be another five-wave upward structure—that’s for later.

Looking at the current situation, what kind of trend will signal the end of the correction? There are two ways.

First, a long-term sideways consolidation, similar to the trend after September 24, 2024, where after a sharp rally of 1,000 points, the market entered a long eight-month sideways range. The second is a quick decline—decisive and swift. Based on Thursday and Friday, the market chose the latter.

Setting aside the weekend developments, on Friday, the daily candlestick closed with a long black (down) candle with no shadows. Next Monday is likely to see continued inertia-driven decline. After a rapid drop, the Monday candlestick will likely diverge from the 5-day moving average, similar to the low point at 3816 in 2025. After breaking below the moving average, a rebound occurs, which lasted 18 trading days, forming a double bottom at 3816, and then resumed an upward pattern.

Therefore, in terms of trading strategy, during inertia-driven panic, it is appropriate to increase positions moderately. After a rebound, significantly reduce positions, wait for double bottom signals, with the upper limit at 4197, the middle at 4000, and the lower at 3815.

Next week, for those looking to bottom fish, remember: bottom fishing means buying in a bottom zone, not necessarily at an absolute low point. You’re not a god, neither am I, but you must remember to be slow and to buy in batches, under these scenarios:

Aggressive traders: buy on volume decline with a long lower shadow, combined with the technical indicators I explained thoroughly earlier, when the index drops below 30. Enter the market on the same day. Suitable for short-term traders. Even if you catch the bottom, pay attention to reducing positions gradually—no rush. Exiting is just to make you feel comfortable.

Steady traders: buy on the first day when a low point appears, then see the low point rise the next day, and the third day, if it doesn’t break the previous low, it indicates a medium-term bottom. Don’t buy all at once; buy in batches. Combine with the technical indicators I explained earlier. An additional condition could be the convergence of moving averages.

Combining bottom fishing with my technical outlook on the market’s future:

As for bottom fishing, I will discuss it later in 【Yuanbao Trading School】 as a dedicated topic—see if there are opportunities.

Direction: If no new themes emerge, look at the most active themes before and during the decline, such as computing power and energy storage.

A quick note on energy storage: until a certain conflict is fully resolved, a strong sector-wide rally is unlikely. The probability of a mainline breakout increases only if the conflict ends quickly. Conversely, if conflicts end rapidly, sectors will face pressure due to fewer catalysts.

As for targets: just review what I wrote last Sunday; they are sufficient. Personally, I prefer 【Xiaoyang Solar Power】.

On Friday, I will do a live broadcast titled 【Storytelling: The Path of A-shares】, as the first lesson of 【Yuanbao Trading School】. Honestly, these contents are quite boring; the first session has little practical value. Think of it as a driver’s license test—subject one.

But I believe this is essential knowledge for you, and there probably won’t be a replay.

That’s all.

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