[Red Envelope] Bullish Return Quickly? Don't worry! This signal should not be underestimated!

Funds rotate in search of market favorites, and the aftershocks of the high-level core button will eventually be replaced by new rhythms. [Taogu Ba]

Review on 2026-02-25

1. Market Review
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In the early trading session, market volume opened low and then rose. Driven by resource sectors repeatedly rising, the overall market showed a relatively strong volume-driven upward trend. Phosphates, energy metals, steel and cement, precious metals, shipping, real estate sectors performed well. The three major indices steadily advanced, with gains exceeding 1%. The Shenzhen Component Index approached the previous high on the left side, and after the Shanghai Composite Index recovered above 4160, there was no sign of ETF sell-offs, so the market performed quite healthily and steadily today. In terms of short-term sentiment, although the loss-making effect at high levels continues, the low-tier groups performed very well today, with high promotion and red plate rates. Yesterday’s core loss-making sectors, like iReader Technology, Hengdian Film & TV, and Bona Film, also attempted to rebound, significantly increasing overall sentiment stabilization expectations. Regarding short-term themes, Guangjun showed weaker performance early on. After inertia-driven declines in AI applications, copyright branches attempted recovery, but the film and television branches remained relatively weak. Early opportunities were concentrated in the top two boards of phosphates, with few other sectors showing opportunities on the right side. Overall, the market showed healthy rotation, with broad gains but modest increases, and the profit-making effect was relatively dispersed. Opportunities on the right side were limited.

2. Major Market

Driven by continued capital inflows after the holiday, today’s market continued to steadily increase volume, pushing the index higher. Yesterday, the Shenzhen Component Index consumed the pressure on the left side of zone ①; today, the upward pressure was significantly reduced, making the rise smoother. However, current market turnover still lags behind the peak levels of the same period last year. With current liquidity levels, even if new highs are broken, there is limited room for significant gains for now. There is no obvious resistance above the Shenzhen Index; the next key resistance can be referenced near the previous high of 4190 on the left side of the Shanghai Composite. The dense trading zone on the left side of the Shenzhen Index has been fully covered, turning into support. Oscillations within this zone are reasonable, and only a clear breakout of zone ① would signal a new wave. (Updated zone ① division in the chart below.) Even if there is some oscillation or pullback within the zone, there is a certain safety margin. The first support level to watch is the 5-day moving average. Until it is effectively broken, the upward oscillation expectation remains valid. Overall, the index performs well with high safety margins, and short-term space is limited. The probability of large swings (big candles) is relatively small; small fluctuations are expected. The current market issue is not the index itself but the repeated shifts in market style, the high randomness of sector rotation, weak sustainability, and external and geopolitical uncertainties. Therefore, trading remains challenging, especially with the current tendency to chase highs and sell lows, which can lead to losses.

Additionally, after the Shanghai Composite Index returned above 4060 today, the CSI 300 ETF still experienced slight continuous selling. Although the intensity is not comparable to earlier periods, the idea that “it’s not suitable to rise too fast here” still seems valid. This is a significant signal that may suppress future index space expectations to some extent. Under these circumstances, continued high attention to the ETF is necessary. If ETF selling intensifies later, caution should be exercised regarding the 4060 level.

3. Sentiment

Today, although the short-term loss effects at mid-to-high levels persisted, several core sectors attempted rebounds, with repeated attempts at core “core buttons.” The performance of mid-to-low tiers was quite good, with high promotion and red plate rates, just with new faces replacing old ones. Sentiment warmed up, but with different carriers. Previously, the strongest loss effects were concentrated in AI video sectors. As today’s core “core buttons” started to release, copyright sectors began to show recovery attempts. Tomorrow, leading sectors like iReader and Hengdian are expected to stabilize, so the negative feedback might only remain with companies like Meibang Shares, which are more transparent and somewhat independent, thus having limited impact on overall sentiment. Overall, the phase of continuous sentiment suppression seems to have paused. Conditions for stabilization and recovery are emerging. From today’s recovery path, low levels are pushing back to high levels, and new carriers are clearly driving old sectors. Therefore, short-term trading should focus on these newly rising low-level sectors with multiple consecutive boards, considering their sector strength and expected divergence. Tomorrow is likely to be a key point for healthy divergence, offering some trading opportunities. The main focus will be on the transition from 2 to 3 boards. Operation-wise, it’s necessary to increase turnover appropriately.

4. Sector Analysis

1. Phosphates
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Today’s strongest sector, which we also reminded everyone about at the open. From the trend, it shows characteristics of short-term hot sector relay, and is the main carrier of sentiment recovery today. Tomorrow is likely to see inertia continuation, but the magnitude won’t be as strong as today. Overall, a positive differentiation is expected. During this process, a few top-performing stocks will emerge. Currently, these top stocks are concentrated in today’s 2-board tier. Among them, Cerespet is a core strength. If large orders cannot buy a one-word limit-up tomorrow, then the market’s focus will shift to the battle for natural limit-ups in the 2-3 board range. Which stocks will stand out depends on market choice. Several candidates have their own points. For example, Liugui Chemical faces significant share pressure and needs higher turnover. Chuanfa Longmang faces strong resistance at the 4-board level, meaning space above 3 boards may be squeezed. Jinzhi Da is low-priced with a relatively good share structure, but is expected to open very high tomorrow, making entry less comfortable. If it can increase turnover and proactively go ahead of competitors, that would be better.

2. Non-ferrous metals

Today’s rise in non-ferrous metals sector is part of resource sector rotation, lagging behind chemical sectors. Its momentum is somewhat weaker, and its sustainability is uncertain. Future performance may be influenced by geopolitical factors (similar to yesterday’s oil sector). There is some gambling element in the game. Although inertia might continue, the uncertainty remains high. Lithium batteries also performed today, mainly driven by energy metals, which are now included in non-ferrous metals, so no separate analysis is needed.

3. Glass and Fiberglass

Originally, fiberglass was a leading sub-sector within chemical sectors, but today’s performance shows disconnection from the overall chemical sector. The nature of phosphates is more about relay play, while fiberglass is trend-based. Since their rhythms are no longer aligned, they will be viewed separately from now on. From today’s sector performance, among the top three leaders, Honghe and Guoji performed relatively normally, while Jushui showed fatigue. Overall, high-level gains have slowed, and funds are starting to explore low-level rebound opportunities. As previously mentioned, the sector is entering a phase of “weakening and strong,” with profit-taking at high levels. Future strategies will shift toward low-level rebound plays, which will be more random and less clear than high-level moves, possibly involving rotation and individual rebounds rather than broad-based surges. Those not good at chasing rebounds can just watch the show.

4. Chip chain (Optical modules, storage)

Last night, US tech stocks surged, and their after-hours performance was also strong. Under these conditions, the tech sector was expected to continue upward, but today’s optical module sector performed weakly. Although there was some rebound later, the rhythm was passive, and the intra-day performance was below expectations. Short-term momentum has weakened. In the medium term, optical communication and storage remain logical directions for 2026, with no issues in medium-term expectations. It’s better to wait for a healthy correction before re-entering. If today’s slight correction is followed by a quick rebound tomorrow, it would be hard to chase. The sector has not yet entered the right-side trading phase; patience is needed for a healthy pullback.

5. AI applications

After the holiday, the expected rebound was canceled, and yesterday’s large-scale exit of funds from the sector was realized. Today’s inertia-driven decline also played out, and copyright sectors attempted recovery. The main decline phase is likely over. Future performance will lean toward stabilization, with conditions for weak recovery. However, the market chose to focus on low-priced stocks like CITIC Publishing rather than aggressively challenging Light Media, indicating a relatively low risk appetite. Even if there is a rebound, it will likely be weak, with little chance of a big surge or second wave unless new strong news emerges. Therefore, any rebound will probably shift to other new hot sectors rather than a clear entry point.

6. Computing power leasing

The logic for computing power remains similar to yesterday’s. Compared to AI applications, which depend heavily on news stimuli, the computing power sector has a clearer industry logic and is less reliant on news. Currently, shortages and queueing are frequent, directly indicating short-term tightness. As AI video and agents evolve, this shortage will only worsen. Therefore, the sector will likely see repeated activity, with moderate adjustments in the coming days. It’s advisable to monitor for left-side trading opportunities during healthy corrections.

7. Commercial aerospace

In recent days, aerospace sectors have shown some performance. Today afternoon, Aerospace Development hit the daily limit, but overall, it remains within normal oscillation expectations. As previously mentioned, the sector is still in a consolidation phase, lacking clear right-side opportunities. Right-side capital still needs to wait for a large volume surge, and left-side trading remains highly unpredictable, requiring careful stock selection.

Overall, the market rotation remains fast, with weak sustained momentum and high randomness. The strategy of chasing big gains may currently have a low risk-reward ratio. For sectors with clear expectations, patience and waiting for key nodes are advisable. Avoid excessive switching to prevent losses. For sectors with poor outlooks, consider switching gradually during rebounds. For high-risk sectors, control position sizes carefully.

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