While Retail Investors Fear Volume Contraction, I See Taiwan Stock Market Preparing for a Breakout

Taiwan's stock market has recently entered a period of low-volume consolidation. On the surface, this appears to reflect weakening momentum, but from a positioning perspective, it is actually the natural result of rapid cooling in margin financing and day-trading capital from the previous wave. As short-term capital that previously drove up trading volumes exits the market, time is needed for digestion. Therefore, the current focus should not simply be asking 'where did the volume go?' but rather waiting for healthier capital to return. The most critical factors to watch next are whether foreign investors resume net buying, and whether U.S. employment, wage, and inflation data alter Fed policy expectations. If job growth cools without stalling and wages do not accelerate further, market concerns over rate hikes could ease, creating more favorable conditions for foreign capital to flow back into Taiwan equities.

From a technical and positioning standpoint, this rebound still faces resistance. Above, the market confronts a trapped zone combining the neckline, the 0.618 Fibonacci retracement level of the prior decline, and the quarterly moving average. A swift breakout is difficult; a healthier path may instead be 'strong rallies with small pullbacks,' gradually digesting selling pressure through oscillation. Margin debt dropped sharply during the prior correction, and even as the index rebounds, the pace of margin recovery remains slower than the market's advance—indicating positioning has not rapidly overheated, which is relatively positive. Thus, chasing prices aggressively at this stage is unwise, and using margin or loans to amplify leverage is inappropriate. Preserving cash and trimming high-position holdings allows maintaining initiative during the next market shakeout.

On the industry front, AI remains the central theme, but observation must extend beyond tech giants turning negative in free cash flow. AI infrastructure is currently in a phase of rapid capital expenditure expansion. Short-term cash flow pressure does not imply vanishing demand; instead, one should track unfulfilled orders, future revenue coverage of capex, and supply chain inventory and delivery status. From semiconductors and advanced packaging to memory, substrates, thermal solutions, power supplies, communications, and data centers, multiple segments continue to experience tight supply-demand conditions. Thermal solutions and memory, in particular, remain worthy of continued monitoring. Even if overseas memory giants see profit-taking after earnings reports, this should not be directly equated with peak industry conditions.

Therefore, the core of investment at this stage is not guessing whether the index will rise or fall tomorrow, but simultaneously watching 'price, volume, and leadership.' If the index retests lows on shrinking volume, it suggests selling pressure may not be失控 (out of control). If leading industries maintain solid fundamentals and institutional buying support, they should take priority over weak stocks with high margin debt, high P/E ratios, or unclear prospects. More importantly, a rebound does not equal vanished risk. Near resistance zones, prudent position reduction and locking in partial profits are essential. Mature trading isn't about buying the lowest and selling the highest every time, but about limiting losses during downturns, boldly positioning when trends strengthen, and gradually taking profits during recoveries. Whether Taiwan's market can sustain its next upward move hinges on three key indicators: foreign investor flows, Fed policy, and AI supply chain fundamentals.

In July, Taiwan's market saw a major correction. While many scrambled to sell stocks and waited for break-even, at the market's most fearful moment, I didn't flee—I kept focusing on my favored theme: thermal solutions!

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And now?

Shui Leng Xia +44%

Feng Shan Wang +43.7%

Jun Re Wang +30.8%

Qi Leng Xia +28%

Not only did they fall the least, they surged the most on the rebound!

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