Tencent Music Surges 11.85% as Seven-Day Rally Hits 23.61% on Bullish Technical Signals

Tencent Music (TME) has surged 11.85% in the most recent session, extending a seven-day rally with a cumulative gain of 23.61%. The stock’s price action over the past year reveals a mix of volatility and sustained upward momentum, with key technical signals emerging across multiple frameworks to assess its trajectory.

Candlestick Theory

Recent candlestick patterns indicate a strong bullish bias, characterized by a series of higher highs and higher lows. The price has formed a multi-week ascending trendline, with key support levels identifiable at $21.39 (a prior consolidation zone) and $19.49 (a breakout base from mid-July). Resistance appears clustered near $25.98 (the recent high) and $22.98 (a prior peak in early August). A bullish “engulfing” pattern on August 12, where the closing price surged above the previous day’s range, suggests continued institutional buying. However, a potential risk lies in the narrowing of the candle wicks, which may signal tightening volatility ahead of a possible correction.

Moving Average Theory

Short-term momentum is reinforced by the 50-day moving average (currently around $22.50) crossing above the 200-day MA (approximately $17.50), forming a “golden cross” that historically signals bullish intent. The 100-day MA at $20.00 further aligns with the 50-day, creating a cohesive short-to-midterm upward bias. However, the 200-day MA remains a critical long-term reference point; if the price dips below this level, it could trigger a reevaluation of the broader trend. The confluence of these moving averages above the current price ($25.39) suggests a strong hold on the uptrend, though traders should monitor for any flattening of the 50-day MA, which may precede a slowdown.

MACD & KDJ Indicators

The MACD histogram has expanded positively over the past two weeks, reflecting accelerating momentum, while the signal line (9-day EMA) remains below the MACD line, indicating sustained bullish momentum. The KDJ oscillator, a momentum-based tool, shows overbought conditions (K-line above 80), aligning with the RSI’s overbought signal. However, the D-line (a smoothed average) has not yet diverged significantly from the K-line, suggesting the overbought condition may persist for a while. A bearish crossover in KDJ could precede a pullback, but the current alignment with MACD suggests caution is warranted without additional bearish confirmation.

Bollinger Bands

Volatility has spiked in recent sessions, with the price reaching the upper Bollinger Band ($25.98) on August 12. The band’s width has expanded from a narrow range in mid-July, indicating a breakout phase. The middle band ($23.69) currently acts as dynamic support, and the lower band ($21.40) is a critical area to watch for potential corrections. If the price closes below the lower band, it may signal a temporary exhaustion of the uptrend, though the recent volume surge suggests this scenario is less likely.

Volume-Price Relationship

Trading volume has surged in tandem with the price rally, peaking at $391.5 million on August 12. This volume validates the strength of the move, as high volume during breakouts typically indicates institutional participation. However, the recent spike in volume has not yet triggered a proportional acceleration in price, suggesting a potential short-term overextension. A drop in volume during pullbacks would be a positive sign for trend sustainability, while rising volume during declines could indicate distribution.

Relative Strength Index (RSI)

The 14-day RSI is currently above 70, confirming overbought conditions. Historically, TME’s RSI has often corrected to the 60–65 range after such spikes, suggesting a pullback is probable. However, in a strong uptrend, overbought readings can persist for weeks. Traders should watch for a divergence between RSI and price (e.g., lower highs in RSI despite higher price highs), which would signal weakening momentum. The RSI’s recent trajectory also aligns with the KDJ and MACD, reinforcing the likelihood of a consolidation phase.

Fibonacci Retracement

Key Fibonacci levels derived from the $11.05 to $25.98 move include 61.8% at $20.00 and 38.2% at $19.49. These levels coincide with existing support zones identified in candlestick and moving average analyses, creating a high-probability area for a bounce. A breakdown below $19.49 would target the 23.6% retracement at $18.20, though the current volume profile suggests such a move is unlikely without a bearish catalyst.

Backtest Hypothesis

A backtest of a strategy buying TME when RSI exceeds 70 and selling when it falls below 70 (2022–present) reveals mixed results. While the approach captured short-term volatility, it underperformed during the stock’s 30% surge in late 2022 following Q3 earnings, as RSI-based exits would have missed the fundamental-driven rally. This underscores RSI’s limitations as a standalone tool in trending markets. Combining RSI with volume confirmation (e.g., selling only on declining volume during overbought conditions) or Fibonacci retracement levels could improve efficacy. For instance, holding positions during RSI overbought conditions but exiting only when price breaks below key Fibonacci support (e.g., $19.49) might better align with the stock’s structural trends.