The equity backdrop remains positive as markets continue to trend skyward, defying so many traders and commentators overly focused on short-term indicators. That’s got to hurt. My expectation is that the intermediate-term, 1-2 quarter rebound that began in Q4 will start to peak somewhere in mid-late Q1 2020. Between now and then, shortterm pullbacks are likely to be shallow, short and not worth micro-managing.

Once the weekly momentum indicators begin to peak, I expect a broad choppy trading range to develop through Q2 into Q3. The technical picture also supports colleague Tom Lee’s fundamental view, outlined in his 2020 Outlook published this week. Part of it is available on page 3. As a reminder, Tom and I maintain independent views driven by different methodologies, but when they align, as they did throughout 2019, it’s usually a valuable signal for investors.

As the bull market adds upside momentum and participation broadens to more industry groups, from a tactical view many of 2019’s leading stocks are becoming advanced and less timely to be chasing. Sentiment indicators, such as the American Association of Individual Investors’ bullish readings, are climbing toward overbought levels. This suggests to me that investors should be looking at stocks that have advanced less or are in the early stages of bottoming.

This brings me to Tencent Holdings (TCEHY, 700 in Hong Kong). On October 8, I noted here that it was a laggard among Chinese peers but it remains timely now as it begins to complete a bottoming pattern at its longer term uptrend. While not all investors can purchase international stocks, given our expectation that global markets broadly improve through next year, Tencent, with a $500 billion USD market cap, is one of the more important international technology stocks to consider owning.

Market Signals Bullish; Ten Cent Looks to be Bottoming

Why Tencent now? Weekly momentum indicators, which are helpful identifying 1-2 quarter directional shifts, are building to the upside as Tencent successfully completes a second retest and rally from its rising 200-week moving average. Relative performance versus the S&P 500, one of the key technical tools to identify changes in leadership, confirms the upside price move, as it begins to push above the May highs.
Overall, I view Tencent to be early in a new bull cycle and would use near-term pullbacks to accumulate.

Bottom Line: Remain bullish.

Market Signals Bullish; Ten Cent Looks to be Bottoming
Market Signals Bullish; Ten Cent Looks to be Bottoming
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