Talking about mid-term strategies

Based on trading volume, it’s still relatively quiet, and with buy/sell from the North (Northbound), the volume is also low. Whether a ceasefire agreement can be signed will only land mid-week; before that, uncertainty hasn’t changed. Large funds are still waiting. When short-term hits this point, it’s easy for strength against the trend to get followed by a catch-up drop. For the short term, keep waiting—it’s coming soon. [Taogubang]

During this break time, I’ll share my views on the index and the medium-term outlook that I discussed with multiple researchers over the holiday:

About the index:

The consensus view is that there is still a “second half.” This has been a highly consistent judgment since the second half of last year. This time, the Middle East event is similar to the trade war in March and April last year: it causes a wave of downside in the short term, but it doesn’t affect the continued upward run. A low-probability scenario is that the bull market ends, and the trigger for that low probability is that economic data in the first half came in below expectations.

CSI 500 and CSI 1000 are two relatively important benchmark indices. After 924, both have completed doubling. Generally speaking, sentiment can push for doubling, but after doubling, for prices to continue higher, you need a logic. That logic is economic data recovery. My personal view is: unless first- and second-quarter economic data are especially bad, or Middle East instability causes a further spike in oil prices that in turn impacts the economy, other than that, the bull market looks good for the second half. The probability of the above two bearish scenarios is relatively small.

For the former, if economic recovery is worse than expected, it will further trigger more aggressive stimulus policies—still positive for the stock market. For the latter, it’s something the entire world can’t bear. The party that starts the war first has to weigh it.

Now let’s talk about the medium term:

Recently, I’ve been hearing a lot of discussions about solar PV and the pig cycle, and you can see them in the stock forum too. The pig cycle hasn’t bottomed, but solar PV stocks have already cleared out; the industry cycle is approaching an inflection point this year.

Last year, the solar PV industry was at its industry trough. Every set of data was poor—losses went beyond imaginable. In this environment, from last year onward, share prices started building a base; with sustained increased volume at low levels for half a year, and prices going sideways and oscillating, it’s very clear that there’s a signal of capital entering the market. The certainty of this cycle’s bottom is quite high. What we’re waiting for now is the inflection point in fundamental data.

In the second half of last year, anti-“involution” policies began to be rolled out. Normally, the industry would first push it itself; if they can’t push it through, then the higher level would step in to coordinate. For example: your recent grades are really bad. Mom first tells you to study properly on your own. If you still can’t implement it, then you start getting a beating. Solar PV is similar now. If the industry can’t implement it, some interpret it as a negative—while I think it actually fits expectations. If they could push it through themselves, they wouldn’t get to this step. Around New Year and again at the end of March, the Ministry of Industry and Information Technology twice stated that anti-involution in solar PV is the top priority for this year’s work. This is policy “backing” for the future—a fallback endorsement.

A gap in a sector is signaled by industry leading companies incurring losses; a sector’s recovery doesn’t necessarily originate from the leaders—some smaller sub-branch enterprises may start first. Like sparks that spread through the brush: within the sector, it diffuses, and ultimately forms a reversal of the entire sector.

Organosilicon kicks off first. During the holiday, Dongyue Silicones released its Q1 report—it’s very good. GCL-Silicon is industrial silicon, which is upstream of organosilicon. Based on current information, in the first half the data for industrial silicon is not as good as organosilicon. For industrial silicon, simply achieving reduced losses or breaking even would be a good outcome. Looking at the whole year, GCL-Silicon has a full-industry-chain layout, and its upside elasticity will be greater than Dongyue. Put simply: Dongyue reverses early; GCL-Silicon has more elasticity.

When I was writing the draft, both of them hit the daily limit up together. At this position, you need to take the limit-up seriously. From a technical pattern perspective, GCL-Silicon is one of those that digs a pit and then hits the limit-up—this kind of move often appears before the start of a long-term bull market, washing out the last batch of uncommitted people. Second, what also needs attention is whether the signal of Dongyue’s earnings reversal can spread broadly across the sector. It doesn’t require huge profit spikes— even if it’s only “less loss,” that’s still a positive signal. If this reversal shows up in the Q1 reports, then solar PV isn’t just a medium-term positioning anymore—it has the potential for a big multi-month wave like what happened with Yi Zhongtian last year. Hanhong Technology and Yi Zhongtian both started moving after their Q1 reports last year. Of course, if other companies’ data remain relatively weak, then you still need to be prepared for continued bottoming with sideways oscillation.

Lithium carbonate had already done a round last year. After taking profit at the top, the stock price hasn’t returned to the level when people exited. Among lithium carbonate-related companies, Tianqi is the purest. It holds the lithium mines with the lowest costs; the logic is simple and clear. Compared with Tianqi, Ganfeng has other directions such as energy storage. Last year, Ganfeng’s performance was stronger than Tianqi, but it didn’t follow the same logic. If there’s an opportunity later for lithium carbonate, the first choice is still Tianqi.

Lithium carbonate’s logic is similar to silicon’s. If silicon reaches its bottom, lithium carbonate could accelerate. You can also reference US Albemarle for lithium carbonate’s trajectory. Tianqi is moving along with Albemarle; and if you have access to US stocks, it’s recommended to pay more attention to Albemarle at that time. Lithium is an energy metal and a core area in future power-game among great countries. Tianqi’s mines are mainly overseas, which falls within the US sphere of influence—so Albemarle’s performance should be stronger than Tianqi’s. Tianqi’s risk point is the instability of overseas lithium mines. Longi and silicon are in the same industrial chain, and the rhythms are about the same.

Best to mention food and beverage. This is a conservative long-term backup: all the data is weak, total consumption volume is declining, and prices keep falling. This bull market isn’t related to them; many stocks are making new lows.

Consumption is a defensive attribute. The last big market started only after the bull market ended in 2016 and then stabilized. When the index is strong and the leading sector outperforms, it’s usually high-risk-appetite and high-elasticity. When the index is weak and the leading sector is usually low-risk-appetite defensive sectors—common ones are consumption and pharmaceuticals.

Under the premise that there is still expectation for a bull market, consumption is hard to start, so consumption is seen as promising but not something to focus on right now—let’s talk later. Only when the medium-term index outlook falls below expectations should you consider this direction. The observation signals are also very clear. For example, high-position tech like Yi Zhongtian hasn’t broken down, and low-position consumption doesn’t have corresponding startup—so for now, we won’t focus on this direction.

Last week, Moutai raised prices. Since distributors still have a large amount of inventory on hand, this price increase is to back up the distributors—to help the inventory they hold appreciate in value. The industry is still a little distance away from clearing out (fully digesting supply).