Bullish sentiment may be suppressed, and the pattern is expected to be difficult to maintain. On Thursday, A-shares experienced volatility and closed slightly lower. The Shanghai Composite Index fell by 0.42% to close at 2356.86 points, while the Shenzhen Composite Index dropped by 0.28% to close at 923.40 points. From the market performance, some obscure stocks showed significant activity, with some even having the potential to overtake others.
The liquidity situation was slightly tight, with the one-day treasury repo rate continuing to rise during trading hours. However, this liquidity strain might only be temporary. On one hand, funds for subscribing to large-cap stocks are currently frozen, and on the other hand, the central bank has initiated a 91-day positive repo. The impact of additional reserve requirements for small and medium financial institutions and corporate tax payments is limited in time. When new stock issuance slows down next week, liquidity conditions should recover.
Other news items are hard to evaluate as neither clearly good nor bad. In terms of pressure, the main concerns are the renewed uncertainties surrounding the Greek situation and the Shenzhen Stock Exchange's reminder about the upcoming delisting system. On the supportive side, the chairman of the CSRC pointed out that blue-chip stocks present "rare" investment opportunities and advocated for wealth management funds to purchase shares.
Yesterday morning, data showed that China's foreign direct investment (FDI) in January decreased slightly by 0.3% year-on-year. Although it marked the third consecutive month of year-on-year decline, the decrease was significantly narrower compared to December's drop of 12.7%. This data was almost positive, so it may not necessarily be bearish and could even be interpreted as bullish.
However, I am cautious about FDI data in the medium to long term, which relates to the disappearance of China's demographic dividend. Any company manufacturing in China will face difficulties in recruitment unless they offer higher wages or better benefits than other companies. This situation was expected to occur later, but currently, China is resisting RMB appreciation and unwilling to enter a depreciation channel. I believe this can only last temporarily and may not be sustainable in the long run.
Liquidity is generally better in the first half of the year. Since the majority of A-share investors can only go long, relatively sufficient liquidity may suppress many negative factors, preventing them from surfacing temporarily. Stock index futures can be both long and short, but the shorts must consider the enthusiasm of the longs in the spot market, which is a realistic attitude. When the index futures shorts cannot hold out any longer and make concessions, it is quite normal. Judging from the positions in index futures, recently the shorts have been retreating, with their positions significantly reduced.
There are no restrictions on going long or short in commodity futures, so the above-mentioned influencing factors are weaker, without obvious enthusiasm from either the longs or the shorts. Therefore, the barometer function of commodity futures will be stronger. Looking at domestic commodity futures, the recent situation is far worse than stocks. Yesterday, nonferrous metals and chemical products fell sharply despite the rise in crude oil prices, especially PTA, which plummeted even as it approached the cost area.
In the external market, crude oil remained strong, while other varieties were volatile. The Baltic Dry Index bottomed out earlier this month, then rebounded for seven days, but has been range-bound this week. Regarding BDI, I have been monitoring it daily and found that its trend is very characteristic; whether rising or falling, the index often shows continuous dozens of days of red or green lines. So this time, only a few days of increase seems strange, meaning we need to beware of another fall in the index.
The dollar index is a reference point I repeatedly emphasize, as it has often moved inversely to A-shares in recent years. As of Thursday, the dollar index had risen for three consecutive days, recovering all short and medium-term moving averages. However, whether it can continue to rally in the future is uncertain, mainly due to the unpredictable situation in Greece and the Middle East.
Looking forward, the bulls are expected to continue their efforts, and there remains a possibility of further gains and new highs. However, the pattern of the index has reached its peak and is expected to be difficult to sustain, increasing the likelihood of sharp fluctuations and misleading patterns. Cautious investors should not participate excessively until the true direction of the index breakout is clear. Currently, the negative news regarding small-cap secondary stocks has emerged and will ferment over the long term, while most blue-chip stocks are under negative pressures and find it hard to sustain upward momentum. In such circumstances, although the bulls are extremely resilient, they will also become very tired.
Small-cap secondary stocks remain strong to date, mainly because the dominant forces within these stocks cannot follow unfavorable news smoothly and can only act against them in the short term. However, the delisting system is a medium to long-term influencing factor. While the upward trend is still okay, once a downward trend occurs, it will have profound impacts on the stock price structure. (Wealth Winner Network)