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Hot money chasing small cap China stocks

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obos_6-15-tumb(Sept. 4, 2009 - Chinavestor) The last few days were unusual in the sense that some small cap NASDAQ and AMEX listed Chinese stocks popped over 30% from one day to the next. Some are news driven, such as Sinovac (AMEX:SVA), this tiny vaccine maker. The stock rocked the house earlier this week with a staggering 53% jump from one day to the next. Extreme volatility remained, moving the stock over 10% each day. On a personal note I am sceptical about longer term prospects of Sinovac ((AMEX:SVA) based on historical performance,  - e.g. this kind of irrational exuberance happens every two years and then the stock price slides back to the $1-$4 range,  - and based on a personal encounter with Sinovac's CEO, Mr. Weidong Yin.

While he looks like a polished gentleman his management team has rewarded lavishly themselves through "stock based compensation" over the course of the years, raising money on western capital markets and distributing most of the gains for themselves. This is when I stopped paying close attention to the company after I found out that the company spent more on employee compensation then on research or SG&A. So while the news that propelled Sinovac to record highs is valid, it's just a potential and not actual earnings, something the company has never succeeded. Again, exercise caution when dealing with Sinovac.

 

Another stock that caught attention this morning is UTI Starcom (NASDAQ:UTSI) by jumping 37.8% or $.60 on Thursday. The stock is on top of the overbought indicator and momentum may carry it over today. However extreme price moves lose steam unless underpinned by fundamentals or important news. In this case I am not aware of any of this, suggesting that price of UTI Startcom (NASDAQ:UTSI) is going to come back. Strong momentum is likely to hold on in the morning trade but this is not a stock I would want to own over the weekend.

For other Chinese momentum stocks please take a look at the following chart.

Most overbought China stock list

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Bargain hunters should looking at the other end of the spectrum, the most oversold China stock list. According to the indicator, KongZhong Corp. (NASDAQ:KONG) and Linktone (NASDAQ:LTON) offer a chance to turn around. Remember, Guangshen Rail (NASDAQ:GSH) and JA Solar (NASDAQ:JASO) were the most oversold stocks but bounced back up as soon as overall market sentiment sweetened.

Most oversold China stock list

OS-94

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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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