March 7, 2014 (Chinavestor) Chinese stocks have gained traction, at last. But some of them advanced way too fast and are ready for a correction. Candidates are E Commerce China Dangdang (NASDAQ:DANG), SouFun Holdings (NYSE:SFUN), CNinsure Inc. (NASDAQ:CISG) and General Steel (NYSE:GSI), among others.Not overbought yet strong momentum holders are Qihoo 360 Technology (NYSE:QIHU) as well as Melco Crown Entertainment (NASDAQ:MPEL).E Commerce China Dangdang (NASDAQ:DANG) surged 70% in two weeks and is trading way above its trading range. The following chart represents DANG's trading ranges and as the chart suggests, current stock price is over two standard deviation above its mean. This has not happened to DANG for a very long time.
Another stock extreme is SouFun Holdings (NYSE:SFUN). Soufun Hold. (NYSE:SFUN) is not as extreme as DANG, but is still highly unusual. Current stock price is unattainable, statistically speaking.
The following chart sums up all Chinese momentum stocks. Based on current technical reading, E Commerce China Dangdang (NASDAQ:DANG) is way overbought. The size of the arrow suggests DANG advanced too much, too fast. Similarly, CNinsure Inc. (NASDAQ:CISG) is also overbought. Again, the pace of advance is highly unusual.
General Steel (NYSE:GSI) is on op of the chart but this is a small cap, low volume stock. Technical indicators don't work well with these.
Same goes for China Gerui Adv. Mat. (NASDAQ:CHOP).
Instead, investors should take profits off Perfect World (NASDAQ:PWRD) or Trina Solar (NYSE:TSL). These stocks have advanced fast and while are not overbought to extremes, downside risk exceeds upside potential.
Pace of advance looks reasonable for Qihoo 360 Technology (NYSE:QIHU) as well as for Melco Crown Entertainment (NASDAQ:MPEL). The size of the arrow is still far from theoretical highs for QIHU and MPEL. Theoretical high price is $131.9 for Qihoo 360 Technology (NYSE:QIHU), so current stock price of $120 is well within the range.
As far as Melco Crown Entertainment (NASDAQ:MPEL) is concerned, there is no need to worry before it goes to as high as $47.
Youku Tudou (NYSE:YOKU) has solid momentum and is not overbought by any stretch of imagination. See chart above for details.