Holding you back!

$Shanghai Composite Index sh000001$ Today, the A-share market once again dragged down the Asia-Pacific stock markets. The Japanese and Korean indices are still hitting new highs, while the overall trend of the A-share market is relatively weak. To put it bluntly, the market has already entered a pre-holiday, slacking-off mode in advance.

Now, more and more funds are crowding into "chasing light," and the phenomenon of funds huddling together in the optical communication sector has been a hot topic of discussion in the industry recently.

Let me present a set of data: At the end of Q1 2025, public funds' holdings in the communication sector were only 2.7%. Over the next three consecutive quarters, it rose all the way to 5.3%, 9.2%, and 11.1%. By Q1 this year, it directly surged to 13.1%.

Clearly, over the past year, public funds have been continuously increasing their positions in optical communication. Comparing this with the stock price trend of the communication sector over the past year reveals that the fund clustering and stock price increases have already formed a mutually reinforcing positive cycle.

Looking back at the fund clustering patterns in sectors like baijiu, new energy, and pharmaceuticals, the process is basically the same: institutional clustering and position locking → fund NAVs rising rapidly → retail investors following the trend and frantically subscribing → pushing stock prices to higher levels → finally, the hype reaches its peak, and the cluster collapses.

So, at what stage are the funds currently clustering in optical communication?
Honestly, it's still in the warming-up phase where capital is continuously flowing in and stock prices are persistently surging. It hasn't reached the point of peaking and then declining. Everyone knows that extreme clustering will eventually collapse, and someone will inevitably be left holding the bag. But everyone harbors a sense of luck, thinking they won't be the unlucky one.

Precisely because of this mentality, new capital keeps pouring in, and newly issued funds dare to buy at high prices. This eventually leads to a situation: the clustered holdings are too concentrated, making it difficult for such star stocks to plummet sharply; ordinary retail investors see the high price and dare not enter, while institutions leisurely pull the prices up and down repeatedly.

It's highly likely that there will be one last wave of frenzied surge to the top before a turning point and subsequent decline.

Combining these characteristics, here are some practical views on the optical module and communication clustering sectors:

For such star stocks heavily held by clustered funds, after rising too much in the short term, there is always pressure for a correction and catch-up decline. However, they are unlikely to experience a sharp "A-shaped" crash. The top will be formed through repeated grinding, resulting in a complex consolidation pattern.

If someone was trapped at high levels after chasing the rally, the subsequent high-level fluctuations will likely provide opportunities to exit and break even.

For those wanting to position themselves at low levels, you must wait for a correction and stabilization before buying on dips. Don't always think about waiting for the price to fall back to the starting point. Clustered star stocks rarely experience sharp "A-shaped" declines; it's hard for them to fall back to their initial surge points.

But one point must be remembered: whether you are trapped at high levels waiting to break even or positioning on dips, you must control risks, take profits when appropriate, manage profit drawdowns, and never get greedy or linger in the trade. Otherwise, you might accidentally become the one holding the bag.

Ultimately, it's usually ordinary fund investors who end up paying the bill in every clustering rally.

The biggest feature this week is the full pre-holiday effect. The core is the concentrated realization of various earnings bombs and the full release of risks.

The fact that the number of stocks hitting the lower limit during today's session once exceeded those hitting the upper limit shows that, as annual reports and Q1 reports are gradually disclosed, stocks with earnings bombs are accelerating their sell-offs to release negative news.

In the next few days, the rhythm of rapid sector rotation will continue. Sectors that have already fallen thoroughly and released their negative news will rotate and rebound for recovery. Sectors that haven't disclosed earnings or where negative news hasn't materialized may turn and fall at any time. Operationally, it's essential to avoid such uncertain targets.