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China stocks driven by momentum, IPO

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OBOS_tumb_6_8(Sept. 23, 2009 - Chinavestor) China TechFaith Wireless (NASDAQ:CNTF) advanced another 10.2% on Tuesday on top of strong gains in the last four trading sessions and became overbought. The stock is up over 50% in September, raising serious questions how much upside potential CNTF has left, if any. KongZhong Corp. (KONG) is another small cap China ADR that has been on fire on no particular news. both China plays are overbought and thus are ready for a correction. 

ChinaCast Education (NASDAQ:CAST), Trina Solar (NYSE:TSL) and New Oriental Education (NYSE:EDU) have strong momentum but all of them are now out of their respective trading ranges. This in turn raises a flag of caution, though correction is not necessarily imminent. Stocks like these three are dependent on market sentiment to keep creeping higher. With index futures pointing slightly higher before the Bell, momentum stock may extend their rally.

Most overbought China stock list

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There is not a single China stock offering turnaround opportunity by looking at the most oversold China ADR universe. The screen clearly picks up the weakness of the Chinese telecom sector. China Telecom (NYSE:CHA) is now below its trading range but is not oversold yet. China Unicom (NYSE:CHU) fell in tandem with CHA following weak 3G growth numbers. But China Mobile (NYSE:CHL) advanced on Tuesday and Wednesday in Hong Kong defying negative market sentiment on Wednesday following allegations that China's telecom giant will reclaim its fame as soon as it comes out with a viable 3G phone.

Stocks with notable loss include larger cap players such as Aluminum corp. of China (NYSE:ACH), huaneng Power (NYSE:HNP), Sinopec (ANP) and Changyou.com (NASDAQ:CYOU). The weakness of Changyou.com (CYOU) comes at a time when online game industry leaders NetEase.com (NASDAQ:NTES) and Shanda Interactive (NASDAQ:SNDA) registered strong gains. Shanda Interactive (NASDAQ:SNDA) will IPO its gaming unit this week on the NASDAQ in a similar fashion then Sohu.com (NASDAQ:SOHU) did with Changyou.com.  With strong market sentiment returning in September, the U.S. will see resumption of five IPOs this week, something that is very unusual to see in a typically slow month like September.

Most oversold China stock list

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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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