While most China stocks are looking for direction, Huaneng Power (HNP) is the best Chinese momentum stock of the last five trading sessions. Based on the Overbought/Oversold indicator compiled by Chinavestor, China's largest independent power generator, is well ahead of the rest of the China ADR universe. Huaneng has a lot of ground to make up compared to the performance of most China stocks YTD, but as the OBOS indicator testifies, HNP is making progress. While most Chinese companies are looking for direction or take a break following months of strong performance, HNP was lagging behind on high energy costs. Price of coal increased internationally setting a somber tone ahead of price negotiations between coal miners and power producers. But HNP managed to get only a 4% increase in contract coal price and is making significant investment in wind energy, becoming the operator of the largest wind farms in China.
Based on OBOS we said yesterday that NetEase (NTES) is overbought and is ready to pull back. At this point there is still more on the downside and I don't think NTES is out of the woods yet.
But Baidu.com (BIDU) and China Mobile (CHL) are looking good, their strong performance is well grounded and are ready to keep going higher.
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.