At the beginning of 2025, the market is not performing well.

In two trading days, the SSE Composite Index has fallen by 4.2%, while the GEM and Tech Innovation 100 Indices, which are more volatile, have dropped even more by 5.9% and 5.3% respectively. Including the last trading day of 2024, it has now recorded three consecutive days of decline.

It seems that the market ultimately chose to break downwards.

In fact, the A shares had already started to retract before New Year's Day, and the earlier collective drop in micro-cap stocks seemed to indicate that this round of correction had already begun.

However, opportunities in the stock market usually emerge from declines, so it should be observed what kinds of opportunities this nearly inevitable correction will bring.

01

Why?

Yesterday, there was already a small article explaining things, but as long as there is continuous tracking of market trends, it will be found that these small articles are basically either repetitive or baseless and full of loopholes.

As expected, the CSRC quickly came out to refute the rumors. As investors, avoiding and not spreading rumors is really necessary.

I have always believed that the market operates according to its own rules, which are not complicated. For instance, this time, there have always been warnings about potential risks, macroeconomic data has not yet reversed, and the pressure brought by the new president about to take office, and so on.

Of course, a simpler and more universal explanation is that the previous increase was too much, and short-term funds have a demand for profit-taking.

In fact, not only A shares, but capitalists in the U.S. stock market are also eager to cash out.

Since the Federal Reserve meeting indicated a slowing pace of interest rate cuts, the U.S. stock market has been continuously retreating, with the S&P 500 falling from a historical high of 6099 points back to 5868 points, a drop of nearly 4 points.

On the last trading day of 2024, the three major U.S. indexes also closed down, and the first trading day of the year also ended with losses. Previously, some heavily speculated Technology stocks, such as Tesla, have fallen over 20%, and the small stock in the Quantum Concept, QunTeng, has seen a drop of over 40%.

This round of pullback seems to be global.

Of course, due to relatively weak fundamentals, some data have indeed increased market concerns, such as some long-term treasury yields continuing to decline. Additionally, the macroeconomic data hasn't shown significant improvement, which has made the market worried about future corporate profit prospects, leading to a larger decline in the SSE A Share Index, which was unavoidable.

Unless the macro data improves, or the Earnings Reports released over the next two months exceed expectations, or policies break the vacuum period, it is still difficult to predict when market sentiment will improve.

Does this mean the stock market is not worth investing in?

Certainly not!

In previous articles, the general determination was that the market would remain in a consolidation state for some time, or in other words, oscillate within an upper and lower range.

In short, when prices drop significantly, there will be funds entering to Buy, leading to a rebound, but when prices rise significantly, there will be profit-taking demand, resulting in a decline.

The main reason is that funds are mainly short-term oriented.

Why is there a short-term orientation?

The reason has been mentioned earlier—because the economic fundamentals have not improved to the extent of attracting long-term funds.

But why won't there be a significant decline?

The reason lies in the fact that there is already a consensus formed to stimulate the economy, and many powerful stimulus policies have been announced, although these policies have not yet truly taken effect and need more time. If one rashly exits at this time, they might miss the opportunity.

With this consensus, the market also has a support point, making short-term operations of buying low and selling high a good strategy.

02

What to do?

To succeed in high selling and low buying, first roughly determine where the high positions are and where the low positions are.

This issue is actually subjective and there won't be a standard answer.

If the market performance from October 2024 to now is taken as an object of phase trend analysis, using the SSE Composite Index as an example, a box-like range can be observed, where the index rebounded twice to the 3500 point level in November and December, but could not break through again, with the bottom around the 3200 point level.

The previous low was at 3152 points on October 18, technically inclined to consider this as a support level; if the 3200 cannot be maintained, then the index may head towards this low.

A box can roughly be outlined:

From 3500 points down to 3100 points.

In the absence of new forces breaking the current balance, this box can be seen as a short-term fluctuation range and also as a reference for trading limits. If even the 3100 points level cannot be maintained, a further drop to the previous gap between 3000-3100 points will have to occur.

For investors, it is more important to determine the position size and risk control based on their own capital strength, rather than guessing where the low point is.

Specifically, if you are a very conservative investor, it is completely fine not to trade. A better time to enter is after the new president comes into office, after all the trade war tactics have been exhausted and bearish sentiments have cleared, and then decide whether to enter the market, which may require waiting until the second half of 2025. The benefit is that if the trade war leads to a market decline, the cost of buying at that time may be cheaper than it is now.

But if you cannot resist trading and have sufficient risk tolerance, you can also try to make some trades based on the Candlestick chart.

Taking the index as an example, several major indices have already touched or approached the lows of October 2024. Additionally, the unique force in A-shares is the national team. Although it is unclear what indicators they are looking at that prompt them to support the market, we cannot ignore this stabilizing market force.

In other words, at the current level, investors should pay attention to potential reversal signals rather than panicking or complaining.

Even if the market falls further and losses appear on paper, as long as enough Cash is maintained, it will meet daily cash flow needs and allow for the ability to replenish positions when the market truly hits the bottom, thereby lowering costs to achieve good returns when the market returns to an upward trend.

This is also why we often say that many times, one should not go all in at once or have 100% allocation, but should invest in small amounts multiple times.

03

What to expect for 2025?

For the beginning of 2025, many people likely have complicated feelings.

The market performance on the trading day before New Year's Day and after the start of the year has left many investors puzzled. Looking at it now, the decline has intensified the disagreements among parties; the optimistic and pessimistic sides are arguing, yet it seems everyone's reasons are quite adequate.

However, no matter how much market noise there is, it doesn't change the rule of acting in panic and withdrawing during the highlights.

There is no need to be overly anxious about temporary market fluctuations; what's important is whether the price (valuation) has regained a cost-performance advantage and is worth investing in.

Whether this round of sharp decline is at the bottom and whether it is a good time to Buy is something no one can guarantee, but it can be certain that if it continues to drop, the cost-performance advantage will undoubtedly improve.

Taking a step back, the likelihood of the market dropping to last September's 2700 point level is very low. This would imply that everything done by the top levels in recent months was for nothing, which is clearly unreasonable; policies like addressing real estate issues and monetary easing are not just empty gestures.

Of course, the internal and external pressures cannot just disappear in a day or two. However, looking over a longer period, aside from the uncertainty surrounding the trade war and how the new president will handle it, the other pressures have become quite apparent, and the stock market has reacted to some extent.

Even the trade war ultimately just presents a question of rebalancing.

However, the continued decline in trade volume between China and the U.S. is inevitable; the new president will accelerate this decline. Yet, at some point, it will rebalance, only the new equilibrium will be at 500 billion, 400 billion, or 300 billion, just a matter of degree.

But it is impossible for it to drop to 0!

Moreover, the past many years have proven that external pressures often become a driving force for deeper reforms, and this time should be no exception.

In this situation, investments should be made with a focus on stability first, and then we can talk about how high the yields can be.

Warren Buffett has two major investment principles that are still highly respected today, which are:

Rule No.1: Never Lose Money.

Rule No.2: Never Forget Rule No.1.

(First principle: Never lose money. Second principle: Never forget the first principle.)

These two principles are also quite suitable for the current A-share market.

For stability, consider looking at fundamentally sound value stocks or various Index Funds.

If emphasizing high elasticity, the technology sector remains the hottest, and the specific Sector should be well known by everyone, which includes those technology Industries that align with global and national development directions, such as AI, Siasun Robot&Automation, domestic alternatives in Semiconductors, and so on.

As for individual stocks, their volatility is relatively high; details will be discussed further when there is an opportunity.

04

Conclusion

Although the A-share market did not perform as expected in the first two trading days of the year, a decline is not necessarily a bad thing for investors; it may also provide opportunities for buying at a Low Stock Price.

In 2025, it is very likely there will be repeated consolidation.

Therefore, when it falls to a key Resistance, be a bit bolder; and when it rebounds to a Support, be a bit more cautious. By effectively managing the market cycles, the returns are expected to be good.

Matters that are more long-term are another topic.

Seize each moment, make every trade well, and 2025 can also be a good year. (End of article)