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Three most overbought China plays: EJ, MPEL, CHA

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forecast_down March 8, 2010 (Chinavestor) Shares of E-House Holdings (NYSE:EJ) surged $1.91 or over +10% for the day thanks to a sizable surge in the afternoon. But the stock is becoming overbought and might take a break before resuming the rally. Shares of Melco Crown Entertainment (NASDAQ:MPEL) advanced +8.9% on Monday and is in the danger zone as well. China Telecom (NYSE:CHA) is the most overbought NYSE listed China stock and is telling investors: take profits now!


Top three most overbought China stocks on Monday after the close

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We said this morning that "Melco Crown Entertainment (NASDAQ:MPEL) has been trading in a narrow range last week suggesting the stock is looking for a direction. Shares of MPEL are not overbought but is looking for a catalyst for additional upside." - an observation that proved to be right. Meclo has advanced +18% in the last five trading days and is up +38% for one month, raising downside risk. While more upside is possible chances that the stock will fall have increased substantially.

E-House Holdings (NYSE:EJ) has stretched itself too thin according to the overbought chart above. The sudden advance from $18 to over $21 in just three days suggest the stock is overbought. EJ 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.

China Telecom (NYSE:CHA) has ups and downs since the Deutsche Bank upgrade on March 1 but is considered overbought and might be up to a pullback. NYSE listed China ADRs rarely get overbought to a pint where CHA is right now. This is what we had to say about CHA this morning: "China Telecom (NYSE:CHA) is approaching theoretical highs yet more upside is possible. Hong Kong listed H-shares of the company (HKG:0728) advanced 1.99% on Monday, the most among China Mobile (HKG:0941) and China Unicom (HKG:0762). But don't expect a large cap NYSE listed China play to stay quasi overbought for a long time. A few good days may lay ahead but don't forget to take some profits." For more of the article read Earnings can make it or break it: overbought and oversold China stock list



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