Shares of China Eastern Air (CEA) rose $1.27 or 4.85% on Thursday to $27.47, recording an accumulated gain of 22.08% in the last five trading days. The company got boost from a merger with Shanghai Airlines, fuel hedge gains of Yuan 2.74 billion ($401.1 million) and rival Air China's strong profit outlook. But based on the Overbought report, see below, China Eastern Airlines (600115.SS)(0670.HK)(CEA) is the most overbought Chinese stock at the moment and thus is ready to take a break.
China Telecom (CHA) (0728.HK) is another stock that looks overstretched based on the OB report. While the stock price is up only 7.7% in the last five days, it is unusual for the company and thus raises the red flag.
China Life (601628.SS) (LFC) (2628.HK) has been on our radar for over a week by now saying that the stock is overbought and will take a break. LFC is up only 2.3% vs. the DJIA's 6.94% gains since we made the call - see chart here.
Baidu.com Inc. (BIDU) broke through $300 with ease and is getting overbought. If you made profit over the last five days with BIDU, it's time to quit. If you're a long term investor, wait until BIDU gets back to the $400 range.
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.