Sina Corp. (SINA) is up 17.5% for the week but to claim the best spot you need to go like China Unicom (CHU), whose shares are up 21.3% for the last five trading sessions. But percentage change alone is a muted indicator because penny stocks or small/micro cap stocks tend to score high on that measure. This is the reason we like to look at the Overbought/Oversold indicator, a measure that tailors stock moves to previous stock characteristics. In other words if a stock is trading up/down $1 a day on a typical day, a $4 jump is very significant versus for a stock like Baidu.com that moves $5 a day on average.
Looking at the following indicator with this perspective in mind, Sina Corp. and China Unicom (CHU) gets our attention for a good reason. They improved over the week significantly but this raises questions regards to how far they can go.
Another important factor to look for is the position of a stock (point of the arrow) relative to its trading range (blue band) and theoreticl high/low. NetEase (NTES) is trading the closes to its theoretical high and is a signal that the company is becoming vulnerable.
Sinopec Corp. (SNP) is the only China stock on this monitor heading south, but it is well understood as price of oil keeps creeping higher. Sinopec makes money when price of the crude is below $60/barrel based on previous estimates. But as Goldman Sachs increased its forecast for oil price just on Friday morning, outlook for Sinopec is dim for the second half of 2009.
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.