(Sept. 22, 2009 - Chinavestor) Despite a mediocre trading day on Monday, some Chinese ADRs became excessively overbought and raise questions if the rally is sustainable. Take a look at ChinCast Education Corp. (NASDAQ:CAST) from a technical point of view. The stock became overbought and jumped way above its trading range. But since the arrow measures price change of five tradings days, it just happened that ChinaCast Education Corp. (NASDAQ:CAST) was at a relative low five days ago. Add to this yesterday's 7.68% gain and you get a pretty scary picture.
Baidu.com (NASDAQ:BIDU) has been battling the $400 level and while is still overbought, a strong market day can carry the stock somewhat higher.
KongZhong (NASDAQ:KONG) is overbought but has less solid fundamentals that Baidu (BIDU), thus might be ready for a correction today. This is a true momentum stock and thus exercise caution!
Stocks with strong momentum include but is not limited to New Oriental Edu. (NYSE:EDU) and China Eastern Airlines (NYSE:CEA).
Most overbought China stock list
Looking at the other extreme of the Chinese stock universe, Focus Media (NASDAQ:FMCN), China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) are disappointing. Despite a significant drop in FMCN prices, the stock is not oversold, leaving room for further correction. Two Chinese telecom companies reported subscriber numbers and failed to impress investors. But this in turn means that China Mobile (NYSE:CHL) is the beneficiary of such weak subscriber growth and thus is ready to turn around. China Mobile H-shares led the rally in Hong Kong this morning, indicating a strong showing on the NYSE today.
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.