The recent market volatility has gradually eased concerns over inflated valuations in the tech sector. This correction is more about deflation of a bubble rather than its burst, creating opportunities to buy high-quality stocks at lower prices for the next rebound. Today, previously beaten-down sectors like chips and semiconductors staged a strong recovery, with the STAR Market index surging over 5%, signaling that the adjustment phase may be nearing its end as bargain hunters step in.

In late May, when markets were chasing gains irrationally, the advice was to overcome greed by deleveraging, halving positions, and adopting a dumbbell strategy that balances growth and defensive assets. This approach helped many investors avoid significant drawdowns during the subsequent tech selloff. Now, with many tech stocks halved in value and confidence low, the market is gradually finding a bottom. This correction is not the end of the tech bull run but a necessary adjustment to excessive earlier gains. Today's sharp rebound can boost investor morale and lay the groundwork for a stable recovery.

When margin trading balances exceeded 3 trillion yuan, it was crucial to stress deleveraging. Warren Buffett's wisdom that leverage turns time from a friend into an enemy rings true here. This downturn has punished leveraged investors, notably in South Korea where millions of accounts were liquidated, and in China's A-share market, where margin balances dropped by over 200 billion yuan in July. Even an OpenAI founder, once hailed as an AI genius, saw his $45 billion net worth nearly wiped out by margin calls, despite correct bets on AI infrastructure like chips and computing power. This underscores that no matter how sound your thesis, leverage makes you vulnerable to mid-term corrections.

The correction appears close to its end, but those who were liquidated will miss the next uptrend. The key lesson is to avoid leverage entirely, allowing you to weather downturns calmly. Adhering to value investing is critical as the tech bull market is far from over, with ample opportunities ahead.

Recent economic data shows weakening consumer spending, with July's manufacturing and non-manufacturing PMIs both falling below 50, indicating a clear slowdown. To revive growth, a package of strong policies may be needed in the second half of the year. The central bank's recent work conference hinted at counter-cyclical measures to boost the economy and restore confidence, focusing on consumption and investment. The success of these efforts will depend on their scale and implementation, as current conditions are ripe for such stimuli to reverse the economic deceleration and meet annual targets. GDP growth slowed to 4.3% in the second quarter, below the 4.5%-5% target, signaling potential policies to stimulate domestic demand and stabilize the economic base.

Capital market reforms are ongoing, aiming to attract long-term funds, encourage dividends, and promote share buybacks to reward investors. These measures support a healthy, long-term market development. Currently, China's market is in a slow bull run, but sector rotation is rapid and divergence is sharp. Attracting medium- to long-term capital can enhance stability and help investors achieve better returns, laying the foundation for sustainable growth. Reforms in investment and financing should balance both aspects to sustain a 3-5 year slow bull market, which would significantly boost consumption, investment, stabilize the property market, and promote tech innovation.

The recent low-volume rebound suggests that after the sharp decline, irrational chasing has diminished, and investors are becoming more rational. The market is shifting from liquidity-driven to fundamentals-driven dynamics, where corporate earnings become the primary driver of stock prices. With the August half-year reports rolling in, tech leaders with strong earnings and growth potential are likely to recover or even hit new highs, while pure concept stocks may struggle. Among key sectors, the six major AI-related themes offer sequential benefits. The first three—chips and semiconductors, computing power and algorithms, and humanoid robots—are expected to deliver earnings sooner and deserve focus. The next three—commercial aerospace, solid-state batteries, and biomedicine—may rotate in later.

On August 10, the listing of a robot company like Yushu could boost attention on humanoid robotics without draining liquidity, given its small size. China may produce 100,000 humanoid robots this year, with faster growth ahead, making this a long-term opportunity. However, unlike chips and computing, earnings for this sector are not yet in a major upswing, leading to high volatility. This requires tactical trading for now, but as the sector enters its growth phase next year or beyond, a buy-and-hold strategy may become optimal. Currently, the industry is still in early development, not yet in its true growth stage, which is important to note.

AI technology remains the core of this tech bull market. The view aligns with Ray Dalio's that the AI industry's long-term impact on work and life over the next 10-20 years is immense, but short-term price corrections don't change the fundamental trend. The recent two-month decline was a correction of overextended gains, not a shift in the industry's logic. When the next uptrend begins, AI and semiconductor sectors are likely to lead again, as consistently maintained. Now is the time to restore confidence and overcome fear. A dumbbell strategy combining growth and defensive assets is advisable: tech stocks as the "spear" for offensive returns, and high-dividend assets as the "shield" for stability. The latter, with stable payouts and low valuations, have risen during the tech downturn, demonstrating their hedging value against volatility. Many such assets are also "halo" assets, not threatened by AI but offering reliable returns.

The Federal Reserve faces a dilemma. It cannot hike rates for fear of bursting the U.S. tech bubble ahead of the November election, nor cut them due to rising oil prices from Middle East tensions, which keep inflation elevated. The U.S. dollar has weakened over two years but strengthened after the Middle East conflict, which is unfavorable for stocks. Currently, liquidity conditions favor tech, making it a key driver of U.S. market gains. However, during the recent Nasdaq correction, the Dow rose, indicating a potential rotation toward traditional sectors. As U.S. tech valuations remain high, volatility is likely to increase, posing risks. While the timing of a tech bubble burst is uncertain, staying vigilant is crucial. The advice from May, after attending Berkshire Hathaway's meeting, was to "dance near the exit." If the Nasdaq drops 5% in a day, consider halving positions; if it falls 10% or more, consider exiting entirely. This strategy has proven effective in recent months, and monitoring U.S. markets closely remains essential for risk management.

A MACD golden cross signal is forming, indicating potential strength in these stocks. Note: This content is for informational purposes only and does not constitute investment advice. Investors should act at their own risk.