(Aug. 19, 2009 - Chinavestor) China Automotive Systems (NASAQ:CAAS) towers the overbought China stock list, a clearly bearish indication ahead of Wednesday trading. The company gaped up over 10% on August 12 following better-then-expected 2009 Q2 numbers and improved outlook. But according to the overbought/oversold indicator, the rally is overdone and a healthy correction is due for the stock. We pointed out in previous reports that WuXi Pharma (NYSE:WX), China TechFaith Wireless (NASDAQ:CNTF), and China Greentech Corp. (NADAQ:GRRF) were overbought and all these stocks have pulled back since then.
Most overbought China stock list
Looking at the most oversold Chinese companies, Shanda Interactive (NASDAQ:SNDA) has come back in the last two days but there is more upside potential left in the stock. trading has been very choppy for China Digital TV Holding (NYSE:STV) but there is more to the upside in my opinion. Solarfun Power Holdings (NASDAQ:SOLF) fell 11.39% on Tuesday following weak 2009 Q2 numbers. the company is in line with the rest of the Chinese solar sector. LDK Solar (NYSE:LDK) and JA Solar (NASDAQ:JASO) reported below analysts' estimates and fell hard as a result. Embrace yourself for another round of weak earnings. Yingli Green Energy (NYSE:YGE) will report today and industry leader Suntech Power (NYSE:STP) on August 20. (see related article "Solarfun (SOLF) drops 11.39% on Q2 numbers")
Most oversold China stock list
Looking at chinese indices and ETFs, the Shanghai Composite index is technically oversold and ready to turn around. The Morgan Stanley China (NYSE:CAF), designed to track the Shanghai Composite, is also oversold and offers upside potential.
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.