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NTES, HNP ripe for profit taking

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money_3 June 8, 2012 (Chinavestor) Huaneng Power Int. (NYSE:HNP) and NetEase.com Inc. (NASDAQ:NTES) are ripe for profit taking, according to the overbought monitor. More upside looks possible though for stocks that haven't approached theoretical highs yet.

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Thanks to two sound market days this week, most oversold stocks moved off theoretical lows. That said imminent upside looks limited for stocks like Xinyuan Real Estate (NYSE:XIN) or 3S Bio (NASDAQ:SSRX).

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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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