4.6 Pre-market Highlights and Trading Outlook

And I’m not talking about past performance and past delivery slips. Friends who know me well already understand me. Generally, when there’s action in the market or a clear expectation, there’s a review and thinking laid out before 8 a.m. I can’t be bothered to write it—so I’ll just say that it’s the kind of phase where the market isn’t especially easy to trade, or there aren’t many highlights. [TaoStock]
Back to the main point—what’s in the news flow over the weekend.
The news flow over the weekend is pretty much run-of-the-mill. There wasn’t anything particularly beyond expectations. The “special talk” is constantly changing course at every turn; how many sell-side researchers have complained that they can’t keep doing this. As of now, the risk-off sentiment that was brewing ahead of the holiday looks rather pessimistic. During the holiday, the news flow is rather neutral as external factors open the market. If tomorrow morning before the market opens there isn’t some particularly big twist, it probably won’t affect the market’s opening condition. Relatively speaking, when it comes to the opening, it could be slightly more optimistic.

Institutions crowded into light in the first quarter. It’s still the same as what I mentioned in my previous “no-BS” post: the 1.5-line product categories started catching up with gains, and with the strength focused on high-position, large-capacity names. The core still comes back to the same point I mentioned in my “no-BS” post: the market’s issue of volume. Here, if the war doesn’t ease quickly, it will likely follow the same path as the trade war—first trade talk only, then gradually downgrade. Old “Trump” also doesn’t want to continue the war; most likely this is the route.
The second scenario is ground forces entering and the war escalating. If it escalates, then there’s nothing really good to do here. Basically it’s a phase that’s hard to trade. And it will only get harder to trade.
Here I think May should be a window period for going long. The current main theme is optical communications. In that going-long window, you look for a new main theme to resonate with the sentiment, aiming at the likely main upward phase in the market for the year.

After working through the news flow, let me break down the specific sector content in the market:
On the board, the strongest line right now is optical communications. If you say optical communications is the main line, then you really can’t see it. There isn’t the smoothness and strength you’d expect from a true main line. More likely, some excess funds don’t know what to do, so they can only go find a safe harbor in the areas that institutions are clustering around. As for why ocs is strengthening, I also think there’s another reason: the market is shrinking in volume. With fewer choices, you can only pick one sub-sector within optics to cluster around. From the board, tomorrow also doesn’t really look like there’s a chase-the-rally expectation. Instead, whether it will switch to some high-beta names as a rotation is something to consider—for example, Dongda, weiliant e— and these kinds of names, as well as the continuation within the optical fiber sub-sector.

Another angle is shipping logic. Over the weekend, there were a few pieces of research on the Strait of Hormuz.
Mainly a few points.
The first is what was brewing before the market opened last Friday: the strait’s passage tolls are paid through Kunlun Bank using RMB settlement.
Second, the actual number of ships passing through the strait is far greater than what the media reported.
It’s basically like Iran still wants to make the strait’s tolls more “normal” and routine. That suggests the expectation for this standoff will be a long-term source of volatility. With the conditions for a long-term catalyst, you can support the trading of the standoff theme. So here, if it’s confirmed that the strait is passable, then for shipping it’s not directly a negative. According to estimates from Caitong Securities, if the Strait of Hormuz is blocked for one month, the global oil supply gap would reach 240 million barrels. If the gap has to be filled within six months after the blockade is lifted, it would require an additional about 40 VLCCs for full-time transport, which is 5.3% of the currently compliant VLCC fleet capacity. This doesn’t even include the extra stockpiling that countries might do to improve energy security. Cosco Shipping Energy currently has 53 vcll, and China Merchants Shipping has 52 vcll. New ships can’t be brought online that fast. They’ll max out the capacity of existing ships. Previously, people worried there might be no buyers at the right prices; now it looks like the game still has room to continue.

The other directions don’t have much going for them, including pharma. The stocks you can pick from above are already enough to trade this stage.