Tencent shows that China’s crackdown has some cracks
Joe Perry July 13, 2021 4:42 PM
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, FOREX.com
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.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.