Is the prolonged downward trend a sign to cut losses?

Friday’s market was unpredictable again. It was fine in the morning, but suddenly changed in the afternoon. The entire afternoon saw continuous decline, ending with the largest bearish candle recently. Is this decline caused by the main players offloading their holdings, or is it a shakeout? Should we hold on stubbornly or cut losses and exit? [Taogu Ba]

The current market situation can no longer be explained solely by technical analysis; it is entirely driven by emotions. The sharp drop on Friday, with heavy volume in the Shenzhen, ChiNext, and STAR Market, indicates many people are cutting losses. Only the Shanghai market didn’t see volume increase. Think about it—small-cap retail investors hold the most. Therefore, the volume surge must be caused by retail panic selling.

From Friday’s decline pattern, it’s likely that the market will test lower early next week to force retail investors to cut losses. Those already trapped have endured five days of decline. Early next week might be the last frenzy. Is it necessary for us to exit now for the final rush? Not at all. Historically, the harder the decline, the stronger the rebound afterward.

However, when the rebound begins, it won’t all surge at once. Some stocks will start first, and others will follow later. If you sell now and happen to sell the stocks that start first, you might miss the rebound entirely. When the rebound begins, you might not even be able to buy back what you sold in a panic.

So, although there is still downward momentum, it’s not the time to sell. It’s uncomfortable now, but looking ahead, current prices are really cheap. In hindsight, during big drops, the lows are often at very low levels. On April 7 last year and at the end of November, it was the same. In a sentiment-driven market, the more people sell in panic, the more chips the main players accumulate, and the stronger the rebound will be later.