(August 17, 2009 chinavestor) The third week of August started with a huge dive for Chinese stocks both in Shanghai and Hong Kong. The Shanghai Composite, one of the widest gauge for mainland Chinese investors, fell off the cliff and lost 176.34 points or 5.79% to 2,870.63. Trading in Hong Kong didn't offer refuge for China stocks either. The Hang Seng index lost 3.6% just to stay above 20,000. With S&P and NASDAQ futures pointing to a lower open, embrace yourself for a rocky day.
Looking at the most vulnerable group of Chinese stocks, the most overbought China stock list below, China Automotive Systems (NASDAQ:CAAS) and WuXi Pharma (NYSE:WX) are in the danger zone. China Green Tech corp. (NASDAQ:GRRF) advanced a staggering 47.04% on Friday on strong 2009 Q2 numbers. The stock is not as overbought though as CAAS though and suggests GRRF has more room to go.
Most overbought China stock list
The other end of the overbought/oversold report is the list of the most oversold Chinese equities. The oversold list comes handy on strong amrekt days, e.g. oversold stocks tend to re-bounce from unjustified lows. But this is not the case today, at least not at 7:20 A.M. when index futures point to a sharply lower opening for the Dow. Still, the list is good to keep in mind should investor sentiment change.
There are four Chinese stocks that are worth taking a closer look at. Shanda Interactive (NASDAQ:SNDA) has been the most oversold China stock for over a week. The stock has been an underdog in the last two weeks for no apparent reason. Rival NetEase (NADAQ:NTES) reported in line 2009 Q2 last week but fell off the cliff following an analyst downgrade. But I'm confident about the overall health of the Chinese online game sector, and if that's the case then Shanda deserves better then current $46 range.
JA Solar (NASDAQ:JASO) is oversold following weak 2009 Q2 numbers. Other Chinese solar heavy weights reported second quarter earnings last week, all of them below expectations. This in turn means that JA Solar (NASDAQ:JASO) has more downside risk.
Linktone Inc (NASDAQ:LTON) is a small cap low volume stock, not a trading one. But China Digital TV Holdings (NYSE:STV) is suffering for a reason. The company reported weak 2009 Q2 and fell heavily as a result. When a company gets oversold on fundamental weakness, their chances of a quick recovery is slim in most cases.
The most oversold China stock list
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.