[Red Envelope] Pure Gold Content! Detailed Explanation of Leading Stock Hype Cycles——Why Green Energy Hype is a Catch-up Rally Phase?

Hello everyone, I am Xiaoxin. My trading system can be summarized with words like “timing, main trend, leading stocks, low-frequency,” which is the Long-Kong Long model. [Taogu Ba]
Last week, I shared with you the judgment of emotional cycles and resonance points. I believe everyone gained something. During this week’s tide withdrawal phase, most of you should have reduced your positions to the minimum. Today, I want to talk about the cycle of leading stock speculation.

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1. Cycle — a mysterious force that does not disappear by human will**

Cycles are always present in the market, like “dividing and uniting in history,” in the stock market, it can be said “prosperity and decline, decline and prosperity,” and they do not change with system reforms or quantitative measures. I remember a few years ago, after the emergence of the abnormal movement system, the market fell into a long period of coldness. Leading stocks were doubted whether they would completely disappear. Just when leading stock players were extremely confused, a super major theme — digital economy — was born, and the Emperor of Competition Achieved was also born from this. It forcibly created nearly a 5-fold increase by bypassing abnormal movements. At that time, the market was focused on closing at abnormal points every day to build this leading stock. People formed a consensus: avoid bidding at the close, sell at abnormal prices, as if everyone knew this was the light in the hearts of speculators, and it must not be extinguished. The continuous strengthening of Competition Achieved led the digital economy to be continuously speculated for over a month, with a wave of strong profit-making effects.
Recently, quantitative trading has become rampant, especially this week, the market is very bleak, and retail investors are mostly in despair. Many people wonder: with quantitative trading so prevalent, will the market be difficult to operate in the future? I can confidently say no! Quantitative trading has not only become popular now; it has been active in this market for a long time. The market has its own rules. Different trading styles dominate at different times. For example, last summer, institutional-led trend styles were mainstream; then, the speculative style led by Yuzu (Straits and Cross-Straits, and Commercial Aerospace) became mainstream; early this year, the rotation style dominated by quantitative trading was mainstream. The current market downturn is due to its own cycle. When it rises too much, it must fall. It seems to be caused by the Middle East situation leading to continuous adjustments, but in fact, it’s because it has risen too much, many sectors have peaked and must adjust. The Middle East situation is just a trigger; even without Middle East conflicts, the market would still need to adjust. This is determined by the cycle, which does not change with anyone’s will.
What exactly is a cycle? A cycle is a repetition according to certain rules. “Sunrise and sunset, four seasons change” is a cycle; “long separation and reunion” is a cycle. In the stock market, different cycles can be identified based on different anchors. The fluctuations in sentiment form an emotional cycle; the规律 of theme speculation forms a theme speculation cycle; the规律 of leading stock speculation forms a leading stock speculation cycle. Today, I will share with you the cycle of leading stock speculation.

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2. Classification of the leading stock speculation cycle**

As shown in the diagram above, the leading stock speculation cycle is divided into two stages:

1. Main rise stage: the overall leading stock rises from the first board to the peak. During this stage, the main leading stock and core stocks under it do not experience A-shares killing, and there is an expectation of rebound after a break.
2. Catch-up stage: after the main leading stock peaks, it begins to plateau, then a catch-up stock appears, rising until it reaches its peak. In this stage, catch-up stocks have limited height and are prone to A-shares killing after peaking.
   Sometimes these two stages connect seamlessly, meaning the catch-up stock appears on the day the main leading stock peaks. More often, there are one or two days of decline.
   Two key nodes:
   Node 1: End of main rise stage — the main leading stock shows a large negative feedback or even hits the limit down, with significant divergence in the theme; many core stocks within the theme also fall sharply or hit the limit down.
   Node 2: End of catch-up stage — both the catch-up stock and the main leading stock show large negative feedback or limit down, with significant divergence in the theme; many core stocks fall sharply or hit the limit down.
   This explanation might seem abstract, so I will illustrate with some specific cases.

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3. Analysis of the Hehe cycle**

Hehe China leads the cross-strait theme speculation. For this theme, there is a争夺 of the main leading stock, with Hehe China and Pingtan Development as the main contenders. There’s no need to argue who is the main leader; both can be seen as a双龙会 (double dragon). I bring up Hehe China because it better fits the emotional-driven leading stock, while Pingtan Development has a more logical basis. From the trend, Hehe China’s main rise is more spectacular and fits the temperament of a big leading stock. The subsequent hype in the cross-strait theme was mainly driven by Hehe China’s unexpected performance, which ignored abnormal movements and suspensions, leading to a surge.

Main rise stage: October 28 — November 20
The main leading stock kept rising, with some breaks but still closing positive and rebounding the next day, no limit downs or continuous declines. This stage produced several smaller stocks with recognizable patterns, such as Sanmu Group (7 consecutive boards, same cross-strait theme as Hehe China), Renmin Tongtai (6 boards, same medical theme), Jiumu Wang (7 boards, same cross-strait theme), Dongbai Group (5 boards, cross-strait).

Important node 1: November 18
Typically, this day marks the end of Hehe China’s main rise. Let’s look at the market situation:
The index dropped 0.81%, with up to 31 limit-down stocks, indicating a clear retreat of sentiment.

The cross-strait theme fell more than 2 points, with over ten stocks limit down, including Sanmu Group, Dongbai Group, etc.

From a theme speculation perspective, this day marks the end of the cross-strait main rise. But for Hehe China and Pingtan Development, it’s special—they were suspended on this day. Hehe China was suspended on the 17th, 18th, and 19th; Pingtan Development on the 18th, 19th, and 20th. After resuming on November 20, Hehe China hit the limit up again, and on November 21, it hit the limit down. Pingtan Development also hit the limit down after resuming. So, from the perspective of the leading stock cycle, November 21 is the true end of the main rise stage.

Important node 2: November 21
Hehe China and Pingtan Development both hit the limit down; the STAR Market’s Longhai Cross-Strait Innovation also resumed trading with a 20cm limit down. Recognizable stocks like Jiumu Wang, Aerospace Development, Sanmu Group, Renmin Tongtai all hit the limit down, indicating the end of the main rise. The index fell more than 2 points, with up to 71 limit-down stocks, and the cross-strait theme fell more than 4 points. The impact of the leading stocks hitting the limit down is evident.

Catch-up stage: November 24 — December 3
On November 21 (Friday), the main rise stage ended. The next trading day, November 24, entered the catch-up stage. Hehe China, after two limit-downs, stopped falling and entered a plateau. The catch-up stock was Jinfu Technology, which started with a one-word limit on November 24 and hit 7 consecutive boards. Jinfu Technology is not part of the cross-strait theme; it is a catch-up stock because it shares the “Fu” character with Hehe China, and sometimes speculative emotions are driven this way. At the end of 2023, stocks with the “Long” character were very popular, with Shenglong Co., Ltd. as the main leader, followed by Tianlong Co., Ltd., and others.

Important node 3: December 3
Hehe China and Pingtan Development both hit the limit down; the catch-up stock Jinfu Technology also hit the limit down. This marks the end of the catch-up stage and the entire Hehe speculation cycle. The market then entered the aerospace cycle. The aerospace cycle tends to follow industry trends and does not have emotion-driven big leaders like Hehe China, so it’s more suitable to analyze with theme cycles, so I won’t elaborate here.

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4. Analysis of the YuNeng cycle**

Yuneng Holdings leads the power industry theme speculation. As the main leader, Yuneng Holdings is undisputed.

Main rise stage: February 11 — March 12
The stock kept rising, with some breaks but the upward trend remained. No limit downs or continuous declines. Several recognizable stocks appeared, such as Shun Na Shares, Hanlan Shares, China Energy Construction, all within the power theme.

Important node 1: March 13
Yuneng Holdings, Shun Na Shares, Hanlan Shares all hit the limit down; China Energy Construction peaked, marking the end of the main rise. The index dropped 0.82%, with 13 stocks limit down, and the power sector first turned negative.

Catch-up stage: March 16 to present
On March 13 (Friday), the main rise ended. The next trading day, March 16, entered the catch-up stage. Yuneng Holdings, after two limit-downs, stopped falling and entered a plateau. The catch-up stock was Huadian Liaoning Energy, which started with a one-word limit on March 16 and has hit 5 consecutive boards so far.
A special case is Huadian Energy, which started during Yuneng’s main rise but withstood two limit-downs and continued to be a catch-up stock in the subsequent stage. This can be called a crossing dragon, but it’s a relatively small crossing. True crossing dragons are those that jump from one cycle to the next and continue strong, like Aerospace Development, which originated in the Hehe cycle’s main rise and continued to be strong in the aerospace cycle. Competition Achieved is also similar. Huadian Energy has not crossed cycles yet and is not a true crossing dragon.

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5. Trading guidance and significance**

1. The main rise stage of the leading stock is the most valuable for trading, with three main directions:
   Ø Directly trade the main leading stock, but the downside is that once a stock is confirmed as a leader, it already has some gains and risks hitting a top at any time. From another perspective, if the main leader peaks, the smaller stocks won’t do much better, so this remains the purest way to trade leading stocks, suitable for aggressive traders.
   Ø Trade the central army (mid-tier stocks), which is a good choice and I personally prefer it for its stability. The volatility of the central army is not large, and it often provides good low-entry opportunities without chasing highs. For example, during Yuneng’s main rise, trading China Energy Construction; during the initial cycle, trading Sanhua Intelligent Controls. The downside is that the space for the central army is limited, and it often needs patience due to adjustments along the way.
   Ø Arbitrage on the STAR Market, such as trading Hanghai Innovation during the Hehe cycle’s main rise, or Nanjing Digital during Yuneng’s main rise. The advantage is high returns if timed well—sometimes 20-30% in two days—but the risk is high, and it’s hard to lock in. When you realize it, the top is usually near.

2. The catch-up stage of leading stocks carries higher risk because they tend to A-shares after peaking. It’s generally not recommended to trade during this phase. If you do, consider two directions:
   Ø Trading catch-up stocks seems reasonable but is actually tricky: they are hard to find, their space is limited, and they tend to peak quickly. It’s best to do so before 5 boards; after that, the risk of A-shares is high. For example, with Yuneng, after 3 boards, I identified Huadian Liaoning Energy as a catch-up stock, which you can see in my daily review posts. But I chose not to trade it then, instead focusing on Huadian Energy and Jinkai New Energy, considering the tendency of catch-up stocks to peak and A-shoot. Stocks like Huadian Energy, which are crossing dragons, and Jinkai New Energy, which are core group stocks, may not always appear in all cycles’ catch-up phases.
   Ø Trading the main leader involves betting on a double top, which has clear disadvantages: limited space—usually a 20% decline after the main rise before stabilization—and not all main leaders form double tops. For example, Jierong Technology and Aerospace Development did not double top because their catch-up phases ended during the rise.

3. Other issues to note:
   Ø Not all leading stocks have catch-up stages. Whether they do depends on the theme’s popularity. If the theme declines and is not revived, the catch-up stage may not occur, and the leader may face A-shares killing. For example, last year’s Dayou Energy, driven by coal, had a 10-board rise but no subsequent catch-up after peaking. Similarly, Laishen Tongling in March 2024, with 9 boards, peaked and then A-shared, with no further hype. So, don’t deliberately chase catch-up stages.
   Ø The division between main rise and catch-up stages is a post-hoc summary; in actual trading, it’s not always so clear. Catch-up stages often occur during the rise of the leader but can also appear during the ascent. For example, in the aerospace cycle:

December 30 marked the end of the main rise stage. After the New Year holiday, on January 6, it entered the catch-up stage. The catch-up stock was Luxin Chuangtou, which hit 5 boards in a row, and the core group was Jinfeng Technology. This round of catch-up was very intense, even more so than the main rise, bringing the commercial aerospace theme into a frenzy. But after January 13, the catch-up stage ended, and the market was disastrous—core stocks in commercial aerospace all A-shared, and Huoge Ge Communication couldn’t even exit. This shows how bad the market can get after the catch-up peaks. If you don’t recognize it as a catch-up stage and treat January 13 as the end of the main rise, then betting on catch-up stocks the next day would be disastrous.
In summary, the risk of catch-up stages is high and not worth chasing.

That’s all for today! Thank you all for your support and recognition!
Thanks to @YunmenXinqing@Xuezhixing@DonghuAgon@Dongcang2022@HonghongHong@Xiaoma1987@YouhuaZhiShuo@YixinPoChan@BiaogeDiXi@BraveLeiGe@Jason178@Shiqi1123@HaiYiXiao and others for their tips!
If you have any questions, feel free to discuss in the comments!
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Have a great weekend everyone!