China stocks are on fire all over the world. The Shanghai Composite Index <.SSEC> is at new record for 2009 while the Hang Seng Index <.HSI> just finished her best quarter in a decade. Chinese stocks listed in the U.S. had a strong day on Monday led by Sinopec (SNP). But according to the Overbought/Oversold indicator compiled by Chinavestor, American Oriental (AOB), jumped the most in relative terms. The magnitude of the jump indicated AOB is up for a break on Tuesday. Sinopec jumped $4.66, the fourth best daily gain in 2009, and based on historical performance, SNP is up for a correction on Tuesday. However current jump is driven by fundamentals, e.g. an 11 percent gasoline price increase in China, and thus current rally looks more sustainable. China Telecom (CHA: Quote, Profile, Research) (0728.HK: Quote, Profile , Research) is very strong and is also driven by fundamentals, but it looks as if the stock stretched too much too fast and is ready to take a break. Yanzhou Coal is hot among institutions on Hong Kong and strong money flows are behind its spectacular resurgence. This may be a long term catalyst for the stock. Baidu.com Inc. (BIDU: Quote Profile Research) is back at the door of $300 level and is perfectly capable of breaking through if overall market sentiment doesn't interfere this time.
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.