Featured Trade (HK Stock): Tencent trapped within a bearish flag

Tencent medium-term downtrend remains intact, further potential weakness ahead.

Medium-term technical outlook (1-3 weeks) on Tencent Holdings (HKG 0700)



Key technical elements

  • Tencent, a key component stock in the Hang Seng Index with a weightage of 9.25% (the second highest after HSBC) has evolved into a “bearish flag” range continuation configuration in place since 12 Sep 2018 low of 305.20.
  • The upper boundary of the “bearish flag stands at 343.60 which is also the lower limit of the recent gapped down in price action on 30/31 Aug 2018 and the 23.6% Fibonacci of the on-going medium-term downtrend in place since 29 Jan 2018 all- time high of 476.60 to 12 Sep 2018 low of 305.20.
  • The key medium-term resistance stands at 360.00 which is defined by the upper boundary of the medium-term descending channel from 21 Mar 2018 high, the upper limit of the gapped down in price action on 30/31 Aug 2018 and the pull-back resistance of the former ascending trendline support from Oct 2008.
  • The recent 3-week rebound from 12 Sep 2018 low of 305.20 is accompanied by lacklustre/declining volume with the daily RSI oscillator (a momentum indicator) that is still capped by its corresponding resistance at the 55 level.
  • The next medium-term support to watch will be at 272.00/269.80 which is defined by the lower boundary of the aforementioned medium-term descending channel and a Fibonacci projection cluster.

Key Levels (1 to 3 weeks)

Intermediate resistance: 343.60

Pivot (key resistance): 360.00

Supports: 319.00, 305.20 & 272.00/269.80

Next resistance: 398.00

Conclusion

The medium-term downtrend for Tencent remains intact and the recent rebound from the 12 Sep 2018 low of 305.20 seems to be more corrective in nature within a bearish impulsive down movement. Therefore, as long as the 360.00 key medium-term pivotal resistance is not surpassed and a break below 319.00 (lower boundary of the “bearish flag”) is likely to reinforce the start of a potential downleg to retest 305.20 before targeting the next support at 272.00/269.80.

On the other hand, a clearance above 360.00 shall damage the medium-term downtrend for a further corrective up move towards the next resistance at 398.00 (the former swing low area of 09 Feb/04 Apr 2018 & close to the 50% Fibonacci retracement of the decline from 29 Jan 2018 high to 12 Sep 2018 low).

Charts are from eSignal



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