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Rino, Focus Media and other overbought China plays

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obos_629-thumb(Sept. 29, 2009 - Chinavestor) Despite a strong momentum in America - the DJIA advanced 124 points on Monday - U.S. listed Chinese shares traded mixed, leaving investors in the dark whether momentum stocks will extend their rally or not. Despite a lot of noise, the overbought / oversold indicator proved to be effective again. The tool highlighted the two most overbought stocks on Monday morning - Focus Media Holdings (NASDAQ:FMCN) and China BAK Battery (NASDAQ:CBAK).

Both companies were way ahead of the rest of the market, reaching an overbought position. We argued yesterday before the bell that strong market momentum may carry them over to Monday but as events developed, it looks as if both stocks have reached a plateau. While strong momentum carried U.S. stocks higher, Chinese ADRs were hunted by weak performance in Asia earlier the day. This in turn meant that Focus Media (NASDAQ:FMCN) was virtually unchanged by gaining $.05 or 0.45% by the end of the day. China BAK Battery (NASDAQ:CBAK) was very similar in trading characteristics. Shares of the Chinese rechargeable battery maker traded sideways, ending the day $.07 higher.

 

Looking forward, both companies remain overbought, raising the question whether how much upside is left for both companies. Looking at the most overbought China stock list below, Focus Media Holdings (NASDAQ:FMCN) is the most overbought China stock that just plateaued. This in turn means that there is not much short term upside left for the company as far as technical indicators are concerned. The same is true for China BAK Battery (CBAK).

When it came to momentum on Monday, it was Rino International Corp. (NASDAQ:RINO) that rocked the boat. Shares of the water treatment and flue gas desulphurization equipment maker advanced $3.10 or 17.91% on Monday with heavy underlying volume. Shares of Rino International (NASDAQ:RINO) advanced a staggering 50.85% just in the last five trading days, raising question when the rally will come to an end. Based on the overbought chart below, Rino International Corp. (NASDAQ:RINO) became overbought and reached the same position where FMCN and CBAK were on Monday. If history can be a guide, don't expect much upside for Rino International (NASDAQ:RINO) today or in the upcoming days. It looks as if the rally has reached its limit. Look up ChinaCast Education (NAASDAQ:CAST) or China TechFaith Wireless (CNTF) in last week's overbought report to see a similar position then RINO is right now. If that can be of a guide, expect Rino Int. (NASDAQ:RINO) to shed a 6%-8% in the upcoming days.

While the point of the arrow of AsiaInfo Holdings (NASDAQ:ASIA) is in a similar position as of Rino International (NASDAQ:RINO), there are important differences between the two. While it's difficult to predict where Rino is going to be today or in to days, it looks as if Asiainfo (ASIA) has established here share price in the $20 range. If this is true, there is upside left for ASIA in the short run.

For the rest of the most overbought China stock list, see chart below.

Most overbought China stock list

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The other end of the spectrum, e.g. most oversold China stock universe, is just as active. There are several value stocks for bottom fishing: China Telecom (NYSE:CHA), Guangshen Rail (NYSE:GSH) and Huaneng Power (NYSE:HNP). These NYSE listed large cap Chinese companies are not as sexy as some NASDAQ listed names, but all have solid operation, are profitable and just fell out of favor.

Chinese solar companies are hurting as is evidenced by the oversold indicator. The weakness is universal and is led by a bleak short term outlook for the sector. When oil is under $70 and subsidies in Germany, the largest solar market in the world, are under scrutiny expect solar companies to underperform.

Shanda interactive (NASDAQ:SNDA) is a stocks worth paying attention to. The company has just spun-off her online game unit in a mega NASDAQ IPO last week raising questions about how much assets the company has left. But remember that Shanda retained a bulk portion of GAME shares, similar to what Sohu.com (NASDAQ:SOHU) did with Changyou.com (NASDAQ:CYOU) earlier this year. We just published an article on Sept. 12 saying that "Changyou is the profit center for Sohu" - something that is very similar to what we expect from Shanda Interactive Entertainment (NASDAQ:SNDA). If that is the case then don't expect share price of Shanda (SNDA) to collapse below $40 anytime soon because most of GAME's earnings will be consolidated into Shanda's books as well. And for those of you who follow Chinavestor indicators closely, here is some some food for thought. We sent out an email alert last Wednesday before the Shanda Interactive Ent. (NASDAQ:SNDA) IPO saying - take profits off the table:

Dear Chinavestor member,

Shanda Interactive (NASDAQ:SNDA) is trading at $59.78 right now, from $48.94 on Sept. 1, 2009 when it was added to the Growth portfolio. That’s over 20% gain. I suggest you taking profits off the table.

Also, Shanda is on the “BEST” stock list on the weekly stock recommendation, and the stock is up 13% since Monday.

So if you want to know what we think of Shanda (NASDAQ:SNDA) and want to see what stocks we have left in the Growth portfolio, subscribe to Advanced membership now. For additional benefits, please visit the "Premium Content" page.

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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