Tencent shows that China’s crackdown has some cracks
Joe Perry July 14, 2021 4:42 AM
Regulators unconditionally approved the buyout of search-engine Sogue Inc
Chinese regulators have recently come down hard on tech companies due to what they say are antitrust issues, monopolistic behavior or other breaches of consumer rights. However, Tencent (TCEHY) bucked the recent trend as regulators unconditionally approved the buyout of search-engine Sogue Inc, in a deal worth nearly $2 billion.
What’s more intriguing about the timing of this approval by the State Administration of Market Regulation is that on Saturday, regulators stopped Tencent from merging gaming platforms HUYA Inc and DouYu International Holdings, citing that it would prevent competition. Sogue is a rival to Baidu, which now makes Tencent a large threat to Baidu.
On a daily timeframe, Tencent had been moving higher since forming strong horizontal support near 39.40, which was last tested in March 2020. Shares put in a high of 99.40 on February 21st, which appears to be the head of a Head and Shoulders pattern. The stock moved lower and formed the right shoulder of the pattern, breaking the upward sloping neckline on July 6th near 73.90. Thus far, price has pierced, but held, the 50% retracement level from the March 16th, 2020 lows to the February 21st highs near 69.70.
Source: Tradingview, City Index
The target for a head and shoulders pattern is the length from the head to the neckline added to the breakdown point below the neckline, which in this case is near 42.70. Tencent would first have to fall back below the 50% retracement level and through the 61.8% Fibonacci retracement of the previously mentioned timeframe, near 62.67, before heading to target. Horizontal resistance and a gap fill from July 2nd provide resistance near 73.90. Resistance above is at the neckline of the pattern, which currently crosses near 74.25. Above there, the next resistance isn’t until the gap fill of the island reversal for the right shoulder from June 2nd, near 80.50.
Although Tencent claimed a victory over China regulators, the company, and the sector, still have a long way to go if they are to meet the “ new and enforced” standards the government has set. In the meantime, Tencent may be on its way to the head and shoulders target!
Learn more about equity trading opportunities.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.