Two interesting stock charts – Best World and Tencent (12 Oct 18)

Notwithstanding the sea of red in the equity markets for the past couple of days, these two stock charts caught my attention. They are Best World and Tencent.

 

Best World – retreats back to double bottom neckline

Best World has dropped 9.2% from an intra-day high of $1.52 on 4 Oct 2018 to close $1.38 on 11 Oct 2018. Based on Chart 1 below, Best World is retreating back to its double bottom neckline of around $1.39. This seems to be a classic “break and re-test” resistance turned support pattern. There is a confluence of supports (50D, 100D and 200D EMA) which increases the probability of the neckline holding. With the exception of 20D EMA, the other EMAs are rising with golden cross formations. Overall, the chart still looks positive despite the 9% slump and the eventual technical measured target remains valid at $1.59. Please refer to my earlier Best World write-up HERE for more information. A sustained breach below $1.35 coupled with volume expansion negates the bullish feel in the chart.

Near term supports: $1.35 – 1.39 / 1.33 / 1.29

Near term resistances: $1.42 / 1.44 / 1.48 / 1.52

Chart 1: Best World tests resistance cum support level around $1.39

Best World chart 11 Oct 18

Source: InvestingNote 11 Oct 18

 

Tencent – Slumps to almost 17 month closing low amid extremely oversold conditions

Tencent closed down HKD19.40 to HKD267.00 on 11 Oct 2018. Day range 265.00 – 274.60. This is the lowest close last seen on 18 May 2017. It is noteworthy that Tencent has dropped 11 out of 12 trading days with a cumulative slump of 20%. Amid such declines, Tencent is extremely oversold with RSI 21.4 on 11 Oct 2018. Since 2004 (IPO), there is only one occasion where RSI is lower than now. The lowest RSI is 19.7. Based on Chart 2 below, Tencent gapped down with a two month high volume. It remains to be seen whether it is an exhaustion gap. On balance, the chart looks poised for at least a small retracement or bounce. However, the medium term continues to be down.

Near term supports: HKD265 / 260 / 255 / 250

Near term resistances: HKD275 / 283 / 288 / 293 / 300

Chart 2: Tencent slumps 20% in 12 trading days!

Tencent chart 11 Oct 18

Source: InvestingNote 11 Oct 18

 

Suffice to say that

  1. Tencent is evidently entrenched in a strong downtrend from Chart 2 above with falling EMAs;

  1. There should be limited downside in the near term (say unlikely to breach HKD250 in the near term) as oversold pressures escalate;

  1. Do note that there is no rule that Tencent’s RSI will not fall below 19.7;

  2. For a balanced view, please take a look at Bloomberg’s article HERE, citing that Tencent seems to be a falling knife;

  3. Tencent is highly volatile and may not be suitable to most readers.

 

Company also seems to believe share price is undervalued

Based on Bloomberg (see Figure 1 below), average analyst target is around HKD445 which represents a potential capital gain of 67%.

Figure 1: Average analyst target is HKD445, a whopping 67% potential gain

Tencent analyst target 12 Oct 18

Source: Bloomberg 11 Oct 2018

Besides analysts, Tencent seems to believe its own share is undervalued, judging from its consecutive share buybacks for the past 22 trading days from 7 Sep 2018 to 10 Oct 2018 (Source: AAstocks Financial News)

 

Please note the following caveats

  1. Chart reading is subjective in nature and there is no rule that Tencent’s RSI will not fall below 19.7;

  1. I do not have direct access to the above companies’ management. I am also not extremely familiar in the companies’ businesses;

  1. I have alerted my clients on the above stock charts yesterday (Thurs);

  1. I am vested in both stocks. However, as I am a full time remisier, I may change my trading plan (execute several buys and sells, i.e. In and out of the market) to capitalise on the markets’ movements.

  1. The above charts bear watching. Let’s see how it goes as time is required to assess the charts’ developments;

  2. Markets continue to be very volatile. Readers are advised to do your own research before committing to a trade.

 

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