(Sept. 11, 2009 - Chinavestor) While August was a disappointing month for China stock investors, September gave some reason to cheer as some NASDAQ listed Chinese companies achieved tremendous gains. Baidu.com (NASDAQ:BIDU), the most dominant Chinese search engine company and the largest Chinese NASDAQ stock by market cap, cleared $53.69 or 16.84% just in seven days of trading in September. KongZhong Corp. (NASDAQ:KONG), another China NASDAQ play, advanced a staggering 28.62% in September. But such rallies loose steam eventually and investors want to know if the stock got overbought or not.
As the following chart testifies, Baidu.com (NASDAQ:BIDU) is trading clearly above its normal trading range, raising a red flag. But the stock is not overbought yet, technically speaking, and thus offers more upside potential.
The stock that is screaming on the chart is KongZhong Corp. (NASDAQ:KONG). With a 28% rally on its back, the stock is way above its trading range and is subject to some correction.
But investors should focus on stocks with strong, sustainable momentum. Based on the chart below, Sohu.com (Nasdaq:Sohu), Ctrip.com (NASDAQ:CTRP), Petrochina (NYSE:PTR), NetEase.com Inc. (NASDAQ:NTES) and American Oriental (NYSE:AOB) offer additional upside potential. But momentum is always subject to overall market sentiment, so investors have to exercise caution when dealing with volatile stocks.
Most overbought China stock list
The other end of the spectrum, e.g. the most oversold China stock universe, is less interesting this time because most China stocks have accumulated significant momentum lately. But weak performance of Shanda Interactive (NASDAQ:SNDA) is certainly unjustified and the stock might pop up in the upcoming days.
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.