Good Entry for Tencent?
Sound Investment or Not?
Yet again, another great chinese company whose share price has been performing poorly over the past few years. Tencent has a very strong balance sheet, and they make billions of dollars every quarter. It is only natural to think that this company would be a sound investment. So why has the share price been falling for so long, and when is a good time to buy in?
The chinese economy has been performing poorly over the past few years since the pandemic. This is probably the main reason for the faultering chinese equity markets. Tencent has been feeling the pain as it has been trending down for just about all of 2023.
Regulation Induced Selloff
More recently, the chinese government enacted further regulations towards the gaming industry. This caused a major selloff in the chinese stock markets. The selling was especially bad for Tencent as it had one of its worst days in a long time. The head and shoulders pattern and the fact thet the price was near a couple resistance levels could have added to the bearishness.
Long-Term Picture
I quickly want to point out the potential head and shoulders pattern on the very long-term picture with monthly candles. It seems like it will take a very long time to complete this candlestick formation, and anything could happen in that time. But it would be wise to keep an eye on this development if it plays out. It would be a very bearish development.
Bearish Technical Picture
The most important technical aspect of Tencent's share price is that it has been traveling in an almost perfect downward price channel for most of 2023. You can see this in the chart below.
The major selloff I mentioned caught a rebound at support near the bottom of this price channel. This coincided with a very long-term Fib level wich can be considered a strong support. If this trend continues, then one might expect the price to return to the top of the price channel. Before that can happen, there is a strong fibonacci resistance level near the 300.00 price point to contend with.
Directly above you can see the major subindicators that are well in bearish territory following the recent selloff. This fact coupled with the year long downtrend tells me that I should be looking for short opportunities rather than long positions. In order to be more bullish you would want to see RSI above its 50 value and MACD above its histogram.
Potential Trade Opportunities
Since the trend is down, I might consider going short once the price action reaches the top resistance level of the downward price channel. If there is a breakout to the upside of this channel then I would consider a long position. I might even consider a quick swing trade to ride the wave up to the top but I think this would be the riskier option so I will refrain for now.
Support and Resistance Levels to Watch
In the chart below I have mapped out all of the major resistance levels that I am watching. The long-term Fib levels and the long-term horizontal resistance levels are the stronger levels to watch. I also highlighted the shorter-term Fib levels that could act as valid technical support and resistance levels.
All of these levels are where I will watch for potential pivots in price action. These are also the levels I like to enter and exit my swing trades. If I see a catalyst pop up in the news at these levels then that might sway me into entering a swing trade.
Conclusion
Tencent is on a downward trajectory and the chinese economy is not operating on full steam. This tells me that it is not a good time to go long in this name. We really need to see a pickup in the chinese economy for any lagitimate bullishness.
A chinese stimulus has been talked about going into 2024. Maybe this will help the economy and chinese equities. But as of right now I dont think it would be wise to enter into any long positoins until we see the price move above the price channel that I have been talking about. When that happens then I will reevaluate the situation.
As always, I am not a financial professional, and this is not investment advice. Be careful and be patient. Dont anticipate the market. Rather, participate in the market. Don't invest money that you can't afford to lose. Give some of your investments time and know when to cut your losses.
Don't be greedy. Don't invest in anything you don't understand. Don't put all of your eggs in one basket. Don't listen to the hype. Don't fomo or panic into or out of trades. Do your own due diligence. And just follow the trends. A trend is your friend. Good luck trading.
$SSE Composite Index (000001.SH)$ $CSI 300 Index (000300.SH)$ $SZSE SME 100 Index (399005.SZ)$ $FTSE Singapore Straits Time Index (.STI.SG)$ $NIO-SW (09866.HK)$ $NIO Inc. USD OV (NIO.SG)$ $NIO Inc (NIO.US)$ $BILIBILI-W (09626.HK)$ $Bilibili (BILI.US)$ $Baidu (BIDU.US)$ $BIDU-SW (09888.HK)$ $XPeng (XPEV.US)$ $Li Auto (LI.US)$ $BYD COMPANY (01211.HK)$ $BYD Company Limited (002594.SZ)$ $HSI Volatility Index (800125.HK)$ $Hang Seng Index (800000.HK)$ $Hang Seng TECH Index (800700.HK)$
$Direxion Daily CSI China Internet Index Bull 2x Shares ETF (CWEB.US)$ $China Alphadex First Trust (FCA.US)$ $Wisdomtree China Ex-State-Owned Enterprises Fund (CXSE.US)$ $S&P Asia 50 Index Ishares (AIA.US)$ $KRANESHARES SSE STAR MARKET 50 INDEX ETF (KSTR.US)$ $RAYLIANT QUANTAMENTAL CHINA EQUITY ETF (RAYC.US)$ $iShares China Large-Cap ETF (FXI.US)$ $Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR.US)$ $Franklin Templeton Etf Tr Ftse China Etf (FLCH.US)$ $db X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (ASHS.US)$ $iShares MSCI China ETF (MCHI.US)$ $KraneShares CSI China Internet ETF (KWEB.US)$ $KRANESHARES CICC CHINA 5G AND SEMICONDUCTOR INDEX ETF (KFVG.US)$ $Global X Funds Global X Msci China Consumer Staples Etf (CHIS.US)$ $Global X FinTech Thematic ETF (FINX.US)$ $Global X MSCI China Industrials ETF (CHII.US)$ $Global X MSCI China Energy ETF (CHIE.US)$
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102640653 : Thanks
SpyderCall OP 102640653 : for sure. I'm checking out the indices now. I will get back to you.
102640653 SpyderCall OP : Look like Tencent will break 300hkd today to the upside
SpyderCall OP 102640653 : so far it is a really good start. looks promising
Detached House : Thank you Guru!
SpyderCall OP Detached House : I wish I was a guru or a psychic. I have just had a lot of practice starring at these charts all day.![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
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102481566 : Some controls in managing excessive gaming is good, it doesn't mean the end for Tencent as it has other business lines..
SpyderCall OP 102481566 : we're these regulations enacted so people won't be lazy and play video games all day? Maybe they will be more productive? Essentially the regulations would limit some of the revenue streams coming to the companies. But why do they want to or try to limit the the revenues that could possibly come in? I'm just curious.
102481566 : Chines Govt needs to ensure social issues are in place. Many youngsters are losing controls. Revenue from gaming is just a small portion of total revenue for the company.
SpyderCall OP 102481566 : So it is for social benifit? I like the sound of that.
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