Stocks of China’s tech giants have been falling for months as the country’s crackdown on the industry spooked investors. After Alibaba was slapped with the biggest antitrust fine in China’s history, risks increased that regulators are not done with Tencent despite its own $1.5B fine. As a result, the stock fell from its February 2021 all-time high of HKD 775.50 to less than HKD 510 last week.
That 34.3% drop made some think that maybe buying Tencent stock is a risk worth taking. Others believe no potential reward justifies an investment in a Chinese company, even if it is one of the best and biggest. We cannot tell whether the fears of the state just pulling the plug on a company are overblown or not. It would certainly not look good and would most likely cripple China’s economy for years to come. Besides, if that is the Party’s final goal, why bother with fines at all?
We are more inclined to believe that once the dust has settled, it will be all business as usual again. So, let’s focus on the charts and leave the rest to people more familiar with China’s political and business landscape.
The chart above puts Tencent’s multi-year uptrend into Elliott Wave context. The price’s path so far can be seen as a five-wave impulse in progress. Waves (1) through (4) are already in place, but the final wave (5) is still missing.
The price just touched the lower line of the trend channel in wave (4) and bounced off it. If this count is correct, Tencent stock can start rising again in wave (5) despite China’s ongoing Big Data crackdown. Wave (5) is supposed to exceed the top of wave (3), putting targets above HKD 800 within reach long-term.
Once there, however, the impulse pattern would be complete. According to the theory, a three-wave correction should follow. Corrections usually erase the entire fifth wave, meaning a decline back to ~HKD 500. But for now, the bulls remain on the wheel as long as wave (4) stays above the top of wave (1) at HKD 477.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!