After three consecutive days of trading volume falling below 500 billion yuan, the A-share market finally saw a decent rebound. On August 8th, the total turnover of the two markets reached 591.5 billion yuan, an increase of 114.1 billion yuan compared to the previous trading day, with the Wind All A and the Shanghai Composite Index rising by 0.92% and 0.94%, respectively.

Some say, "Trading volume is the driving force behind the train of the market." Under specific windows, fluctuations in trading volume often have significant implications for the trend of the market.

In the book "Trading for a Living," the author Alexander Elder believes that the significance of trading volume lies in its reflection of the degree of involvement of money and emotions among many market participants. Emotional investment itself affects the psychology of participants, and sudden changes in trading volume often signal the formation of some key positions.

For example, a large amount of trading at a certain price indicates that there has been intense competition between bulls and bears. Assuming the bulls ultimately prevail and the stock price rises, the bears at this position suffer psychological torment due to their mistakes and are always ready to correct their errors. When the stock price falls back to this position, the previous bears will choose to buy to avoid making the same mistake again. This buying power forms support for the stock price. The denser the previous trading volume, the higher the emotional concentration of investors, and the stronger the support. The logic for resistance levels is similar.

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In addition to support and resistance levels, changes in trading volume during rising or falling trends are also worth paying close attention to. Generally speaking, a gradual increase in trading volume can be seen as a confirmation of the trend by capital, which will strengthen the continuity of the trend; while a contraction in trading volume indicates a decrease in capital participation and emotional investment, often implying a reversal of the trend.

In a downtrend, sellers are the dominant force. For A-shares, the recent continuous drop in trading volume below 500 billion, setting a new low since 2020, can be understood as a gradual alleviation of selling pressure during the continuous downward process. Fragile investors who could have run in the previous downtrend have already run, and those who could have cut their losses have done so. The positions that remain have stronger will and a higher tolerance for losses. At this time, with the alleviation of selling pressure, the market can no longer fall.

However, does the inability to fall necessarily represent a trend reversal? It also depends on the strength of the buyers.

If the buying power is also weakening, or even weakening faster, it is likely to correspond to a bearish market, and a reversal will have to wait. Only when the buying power exceeds the selling power can it drive an upward trend.

In the current A-share market, there is no shortage of funds, but the willingness to buy is insufficient, and it belongs to inert funds that need a catalyst to activate. On August 15th, the market saw a rise in both volume and price, but the trading volume is still below the normal level, and various signs indicate that it is mainly due to the intervention of bottom-fishing funds entering the market, not a spontaneous market behavior, and the sustainability of the market trend still needs to be observed.

Recently, the economic data for July was announced. Affected by factors such as squeezing out water, financial data performance was not good; the overall economic operation data was sluggish, but there were marginal bright spots, with real estate still being an important drag. Specifically,(1) From January to July, the total increase in social financing was 18.87 trillion yuan, a decrease of 3.22 trillion yuan year-on-year. Among this, the increase in RMB loans to the real economy was 12.38 trillion yuan, a decrease of 3.27 trillion yuan year-on-year; net financing from government bonds was 4.03 trillion yuan, an increase of only 238 billion yuan year-on-year.

(2) Marginal improvement in consumption. In July, the total retail sales of consumer goods reached 3775.7 billion yuan, a year-on-year increase of 2.7%, accelerating by 0.7 percentage points from the previous month; a month-on-month increase of 0.35%. From January to July, the total retail sales of consumer goods were 2737.26 billion yuan, a year-on-year increase of 3.5%; the retail sales of services grew by 7.2% year-on-year.

(3) From January to July, the total fixed asset investment (excluding rural households) was 287.61 trillion yuan, a year-on-year increase of 3.6%. In terms of structure, infrastructure investment grew by 4.9% year-on-year, manufacturing investment increased by 9.3%, and real estate development investment decreased by 10.2%. Excluding real estate investment, the total fixed asset investment across the country grew by 8% year-on-year, with real estate remaining the main drag.

(4) In July, exports grew by 7% year-on-year, slowing down by 1.6 percentage points from June, but still a driving force for the economy. As the inventory replenishment momentum in Europe and America decreases and the global manufacturing PMI falls below the boom-or-bust line, it is highly likely that China's export growth rate will continue to decline.

The above data clearly send several signals: First, domestic demand is relatively weak, with marginal improvement, while external demand is relatively strong, but slowing down marginally; second, real estate is still a significant drag, and policies to stabilize the real estate market are still pending; third, loose monetary policy has not been translated into loose credit, with weak financing demand in the real sector, and the monetary policy transmission mechanism is constrained; fourth, the expectation of loose fiscal policy has not been met, with infrastructure investment below expectations, becoming a drag on GDP.

In other words, stable growth requires policy efforts, but the three major policies of real estate, currency, and finance are not strong enough. On the other hand, the three major policies all need to catch up, and there is still a lot of room for effort. Especially after the 730 Politburo meeting reiterated the unwavering commitment to achieving the annual economic development goals and called for the "timely introduction of a batch of incremental policies," the ball has been passed to the policy departments.

Since then, the market has been waiting for the policy starting gun.

In terms of monetary policy, the main expectation is for continued interest rate cuts to effectively reduce real interest rates and enhance the financing willingness of the real sector; for fiscal policy, the main expectation is for the bond issuance scale to continue to catch up, and there are new initiatives and major actions to promote consumption; for real estate policy, the expectation is for the collection policy to be implemented on a larger scale, and further reductions in existing mortgage interest rates are also anticipated.

So far, there has been a policy response.

In late July, the central bank unexpectedly cut interest rates by 10 basis points, and the finance sector introduced a 300 billion yuan package for equipment upgrades and replacements; in July, government bonds issued 691.1 billion yuan, an increase of 280.2 billion yuan year-on-year, and the bond issuance pace began to return to normal; in the second quarter's monetary policy report, the central bank emphasized "increasing counter-cyclical adjustments" and "deeply exploring effective credit demand, accelerating the transformation of reserve projects"; recently, Shenzhen has begun to promote the implementation of real estate collection and storage.The aforementioned measures have effectively underpinned the market, but in the market's view, they are still not enough, and more is desired. Currently, the situation is at an impasse. Before more policies are introduced, potential buyers are reluctant to enter, and the A-share market can only grind the bottom and wait. In this sense, whether the simultaneous increase in volume and price on August 15th can become a turning point for the market trend still has considerable uncertainty.

However, given that there is a clear time constraint to achieving the annual economic targets, the urgency and intensity of policy introductions increase as time goes on. Therefore, as long as the entire logical chain holds, predicting the timing of the market's reversal is not difficult. From August to October, the urgency of policy introductions is increasing, and correspondingly, the probability of a reversal in the A-share market is also increasing.

Based on this judgment, the most rational decision at present is to lay out in advance and wait for changes to occur. As for what to choose, professional investors should focus on their circle of competence and bottom-fish for cheap assets; ordinary investors can obtain stable returns by investing in broad-based index funds through regular investments.

Of course, there are exceptions to everything. What if the policies do not meet expectations?

If policies that are sufficient to reverse market expectations are delayed, then be prepared to continue grinding the bottom. With more patience, continue to wait for changes to happen.