(Sept. 18, 2009 - Chinavestor) Certain shares of Chinese companies have become overbought and correction is near - at least according to the overbought / oversold indicator. As the following screen testifies, Sohu.com (NASDAQ:SOHU) is still the most overbought China stock despite reaching a peak on Thursday. the situation is similar to that of Baidu.com (NASDAQ:BIDU), China's largest search engine company. The stock broke through the $400 level but it looks as if rally run out of fuel. While the company is solid from a fundamental point of view, technicals suggest investors will take a big breath here. UTI Starcom (NASDAQ:UTSI) popped 18% on Thursday for no apparent reason. It looks that the same story is on the record again - Hot money chasing small cap China stocks. Read the second part of the story, that is UTI Starcom (NASDAQ:UTSI) related.
Besides these three overbought stocks, the rest of the China stock universe looks healthy. Warning! Sina Corp. (NASDAQ:SINA) shows some significant price appreciation, but it is tied to the performance of Sohu.com and Baidu, and consequently is subject to correction.
Most overbought China stock list
Looking at the most oversold China stock universe, not a single ADR is oversold. Long time toast Linktone Ltd. (NASDAQ:LTON) jumped over 3% on Thursday, moving up the list. But performance of China Mobile (NYSE:CHL) and China Telecom (NYSE:CHA) are disappointing. Both companies are suffering on 3G uncertainties. China Unicom (NYSE:CHU) has iPhone and looks sexy but value investors should pay attention to both large Chinese telecom firms. China Mobile (NYSE:CHL) is the largest mobile carrier in the world by subscriber base, has strong cash flow - but is punished for the lack of a successful 3G phone. Stuck with a home grown TD-SCDMA technology, the company has no viable handset yet. But watch out, Dell and Nokia are both in the fray to develop an Android based phone that can be a game changer. It will be inexpensive and will sell fast.
One more thing: it's Friday, time to update the Weekly Stock List.
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.