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NetEase (NTES) is overbought

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OBOS_tumb_6_8Looking at the China ADR universe from a technical point of view NetEase (NTES), the second largest Chinese online game operator after Shanda Interactive (SNDA), is getting overbought and is ripe for a break. The stock closed Friday at seventh consecutive new high in 2009, rattling investors' nerves. As the following chart depicts, NetEase is the most overbought stock among Chinese ADRs and is ready to take a breath.

OBOS_6_8

Most vulnerable stocks besides NetEase include Baidu.com (BUDU) and Sohu.com SOHU). Based on the OBOS indicator, Petrochina keeps up momentum while CNOOC LTD (CEO) is ready to turn around. Sinopec (SNP), Asia's largest refiner by volume, fell last week but we have seen significant institutional interest in Hong Kong for the stock and thus its downside is limited.

Overbought A technical condition that occurs when prices are considered too high and susceptible to a decline. Overbought conditions can be classified by analyzing the chart pattern or with indicators such as the one above. A sharp advance from $15 to $30 in 2 weeks might lead a technician to believe that a security is overbought. Or, a security is sometimes considered overbought when the stock is trading out of its trading envelope and is approaching the theoretical high. It is important to keep in mind that overbought is not necessarily the same as being bearish. It merely infers that the stock has risen too far too fast and might be due for a pullback.

Oversold A technical condition that occurs when prices are considered too low and ripe for a rally. Oversold conditions can be classified by analyzing the chart pattern or with indicators such as the one above. A sharp decline from $30 to $15 in 2 weeks might lead a technician to believe that a security is oversold. Or, a security is sometimes considered oversold when the stock is trading below its trading envelope and is approaching theoretical lows. It is important to keep in mind that oversold is not necessarily the same as being bullish. It merely infers that the security has fallen too far too fast and may be due for a reaction rally.



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