Chapter 42: Hitting the Limit, the Leading Stock Strategy

The next day dawned bright and sunny. April 10th was a Friday, the final trading day of the week. In the A-share market, Fridays are unique; not only do they mark the end of the trading week, but they also serve as the delivery day for stock index futures. On such days, capital tends to be more cautious, and the market is prone to surging before falling back.

Having slept until he woke naturally, Zhang Yang washed up as usual. To his surprise, Xu Jiafeng also climbed down from his bunk, rubbing his eyes as he walked onto the balcony.

"Morning, dorm leader."

"Morning. Do you have an early class today?" Zhang Yang asked, though he could only think of one reason for his roommate to be up so early.

"No," Xu Jiafeng replied, heading into the bathroom. While urinating, he added, "I heard from a gym trainer that they do fasted cardio in the morning to lose fat. I want to give it a try."

"If you're just starting, watch your intensity. Good luck," Zhang Yang encouraged. His experience across two lifetimes had taught him that women are indeed a potential driving force for men to improve themselves. After all, the underlying logic of society is competition; to gain more resources, one must first become excellent. While some young men might be driven to despair or extreme measures over the opposite sex, those who truly understand the laws of competition have already booked extra time with their masseuse.

"I'll pace myself," Xu Jiafeng replied.

Zhang Yang didn't say anything more. After washing up, he went to the bottom bunk, packed his laptop and power adapter into his bag, and headed for the cafeteria.

***

At the cafeteria, Zhang Yang ordered his usual—two fried dough sticks, four steamed buns, two sticky rice chickens, and a cup of soy milk. Once full, he headed straight for the library.

Li Xiaochun, the student assistant working at the library, saw Zhang Yang appear on time once again and greeted him, "You're early as always, Senior Zhang."

"The morning is the golden time of the day," Zhang Yang said with a smile. Because they were well-acquainted, Li Xiaochun could guess what was in his bag and quickly finished registering his valuables.

After a few more pleasantries, Zhang Yang made his way to the sixth floor, the Finance Analysis Room. Plugging in his network cable, he had an hour before the market opened, giving him time to review the capital news brief.

"Hualian Department Store has submitted a merger and reorganization application to the CSRC, intending to purchase core assets through share issuance. This might lead other listed companies to follow suit."

"Zhonghong Zhuoye is using the Kebuyuan Group for a backdoor listing; I should make a note of that."

"Manufacturing PMI data rose in April, which is a positive for the traditional manufacturing sector. However, once good news is priced in, it can easily turn into a negative."

Zhang Yang analyzed the market news item by item, beginning to organize the sectors that might become the day's leaders. He specifically highlighted banking, insurance, and finance. At 10:00 AM, the "Central Bank Monetary Policy First Quarter Regular Meeting" would be held, which would directly impact the scale of liquidity injection from above.

***

9:15 AM. The A-share market entered the call auction phase. Between 9:15 and 9:20, orders could be placed or canceled freely without actual trading.

Zhang Yang opened the stock page for China Construction Bank. The volume of buy orders on the books was very strong; if it held until 9:20, it would likely open higher. Next, he checked the bidding board for Changan Automobile to observe the data changes. He had posted a prediction on the forums claiming that the capital in Changan Automobile had split significantly, which might indicate a market top. He was curious to see if Changan could hit a fifth consecutive limit-up despite the positive manufacturing PMI data.

As time passed, some "smoke screen" orders were canceled before 9:20, leaving only the genuine, high-value orders. For the four major banks, buy orders continued to swell, and the bidding was not overly dense with white dots, suggesting that both institutional and retail investors believed the Central Bank's meeting would bring positive news. The insurance and financial sectors showed similar trends. Meanwhile, the automotive sector, buoyed by the PMI data, also showed collective high-opening bids.

The collective high opening in the call auction pushed stock index futures upward. On the Baidu forum, Zhang Yang's post began to be mocked by those who had doubted him.

[Xiao Daidai]: What’s going on, Joker? It looks like another high opening today. Didn't you say Changan Automobile hit its peak?

[King meets King]: Thank goodness I didn't sell my Changan shares yesterday. If he were a real master, he wouldn't be playing with just a few tens of thousands of yuan.

[Ermao Shangshangshang]: A 62.74% return rate is impressive, but with only 20,000 or 30,000 in capital, a real master wouldn't have such a small position. I feel like Joker just got lucky.

Skeptical replies poured in, but Zhang Yang had no time to check them; he was focused on the market. The 140,000 he had invested in one-day treasury bond reverse repos the day before, along with three days of interest, had returned to his securities account. He could use the funds for stock trading, though he could not withdraw them to his bank card yet. If he needed to withdraw the cash, he would have to stop purchasing reverse repos and wait until Monday.

Time ticked by. At 9:25 AM, the call auction ended. As Zhang Yang expected, the manufacturing PMI data, which had risen for four consecutive months, drove the main index to a high opening. As the market officially opened at 9:30 AM, sectors including banking, infrastructure, insurance, engineering machinery, finance, and automotive all moved upward.

This scene of a hundred flowers blooming and a hundred schools of thought contending was something seen only in a recovery bull market. Zhang Yang clicked on the Dragon and Tiger List. An ST stock (Special Treatment) that had been the first to hit the limit-up, ST Zhongfangji (now Zhongyida), caught his eye.

He quickly opened the research report on ST stocks he had compiled earlier to examine the company's fundamentals. ST Zhongfangji was listed in 1992 as China Textile Machinery Co., Ltd., formed from the restructuring of the China Textile Machinery Factory, and was a leader in the domestic textile machinery industry. In 1998, it was renamed Hudong Second Textile Machinery Co., Ltd. following an asset reorganization. In 1999, it was tagged with "ST" due to a cyclical downturn in the industry and internal management issues, leading to continuous negative net profits. Although it successfully removed the ST tag in 2003, it incurred losses for three consecutive years from 2006 to 2008, totaling 53.249 million yuan, and was tagged again. In the first quarter of 2009, its net profit attributable to shareholders was only 1.46 million, a year-on-year decrease of 91.57%—a total disaster.

"The company’s fundamentals haven't improved, and there's internal shareholder conflict. But textile machinery is part of traditional manufacturing, and it's being pushed by the positive PMI data from last night..."

Zhang Yang opened the textile machinery sector and found that other concept stocks were also rising collectively, but ST Zhongfangji was the fastest to reach the limit-up. In other words, it was the market-recognized leader of the textile machinery concept.

According to the "Limit-Up Strategy—Leader Tactics," a leading concept stock will start moving first, lead the gains, and drive the sector's sentiment. ST Zhongfangji clearly met all the criteria. Zhang Yang did not hesitate; he chased the stock at the limit-up price of 11.28 yuan with 20,000 yuan.

Why did he bet on ST Zhongfangji? It was simple: the market's capital liquidity was too strong. Within five minutes of opening, it had already traded a massive 4 million, reaching one-tenth of the previous trading day's volume. This showed that the capital in the stock was extremely active. Furthermore, because the fundamentals were so poor yet the stock was still attracting market capital despite its small market cap, it meant someone was likely manipulating the price.

The key to determining whether to chase a stock is whether it has future expectations and the favor of market capital. As a leader in the textile machinery sector, even though its market value had fallen for three consecutive years, if the economy recovered smoothly and demand for manufacturing increased, the possibility of removing its ST tag wasn't zero.

1. It had future expectations.
2. It had the attention of capital.

In the stock market, where one licks blood from the edge of a knife, no one can achieve 100% profitability. When playing with high-risk ST stocks, Zhang Yang had set a stop-loss line: three limit-down days. If his judgment was wrong, he would cut his losses immediately. If he was right, he would decide based on technical indicators like capital volume, turnover rate, and K-line trends. Many people who chase limit-ups or end up trapped at the top fail because they don't know how to set a stop-loss line, stubbornly holding on until they are deeply buried.