About the Security (HKEX: 700)
Tencent Holdings is a world-leading internet and technology company that develops innovative products and services, including video games, cloud computing, advertising, artificial intelligence (AI), and digital content.
It operates instant messengers Tencent QQ and WeChat, along with the news site QQ.com.
Stock background:
Tencent shares have lost over 30% of their value since late last year. Tentative signs are emerging that the decline may have run its course.
The constructive fundamental story remains intact. The company owns WeChat, which practically everyone in China uses. The company has come up with innovative ways to show advertisements, aimed at increasing advertising revenue.
The company is also exploring new ways to keep existing highly popular games for longer and extend them worldwide.
Furthermore, earlier this month, media reports suggested that Chinese tech giants, including Tencent Holdings, have launched aggressive share buy-back programs to revive investor confidence.
The risk is the expected payoff from the huge artificial intelligence (AI) investments. In this regard, the Q2-2026 earnings due August 12 will be closely watched. Analysts expect 9% on-year increase in revenue.
In the previous quarter, the company reported lower-than-expected total revenue.
Tencent Holdings (Daily700):
Technical Analysis on Tencent Holdings (HKSE: 700)
For the first time since the decline began, our proprietary system TradersGPS (TGPS) is turning bullish on the daily chart.
To be fair, the weekly chart remains bearish. Cautious investors would rather wait for the weekly chart to turn bullish before considering positions.
Blue candles indicate the stock’s trend is up. Red candles indicate the trend is down.
Tencent Holdings (Weekly):
On technical charts, Tencent shares have managed to find crucial support at 400-420 (the January 2023 high, coinciding with an uptrend line from October 2022). As we highlighted in the previous update, this support is key, and a hold above the support is important for the broader uptrend to remain intact.
The sharp bounce from the support in recent weeks, coupled with positive momentum divergence, indicates that the stock’s slide is losing steam. The 14-week Relative Strength Index has made higher lows just as the price has made lower lows.
Any break above immediate resistance at the June high of 485 would confirm that the immediate downward pressure had eased. This would raise the odds that the worst was over for Tencent shares.
A rebound could pave the way initially toward the March high of 578, possibly toward the January high of 638.
On the downside, a hold above the converged support is vital for the broader recovery to continue (that started in 2022). A failure to hold above could pave the way toward the August 2024 low of 350.
Trading Strategy:
I would be inclined to dollar cost average long below 450, which aligns with Tuesday’s low of 447. This would be over 30% lower than its last year’s peak of 680.
I wouldn’t mind holding a stock with a structurally bullish backdrop and oversold conditions!
