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Upside potential for SNP, China Life underperforms

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LFC_correction-tumbLarge cap China stocks dragged down the China ADR Index on Monday but smaller cap NASDAQ stocks shined. Two stocks that have been in our radar screen lately did exactly as expected.

Chinavestor issued a buy recommendation for Sinopec Corp (0386.HK)(SNP: Quote) (600028.SS) on June 30, 2009 (click here for report) and the stock outperformed both the DJIA and other petrochemicals like PetroChina (0857.HK)(PTR: Quote, Profile)(601857.SS). See comparative chart here. Looking at the overbought/oversold indicator, Sinopec has more ground to make up and thus has upside potential left.

The other Chinese stock we've been watching closely is China Life (601628.SS) (LFC: Quote) (2628.HK: Quote). We issued a warning that correction looms for China Life and the stock indeed underperformed on Monday as the following bar chart testifies.

 

LFC_correction

Looking at the OBOS indicator, China Life is still above its trading range and thus might not recover for a few more days.

obos714

expl-obos

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.



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