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Overbought indicators don't lie: Sina, Sohu and FMCN in focus

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OBOS_tumb_6_8(Sept 30, 2009 - Chinavestor) Volatility is back for China stocks as investors digest a slew of economic indicators and embrace for the upcoming earnings season. As the following chart testifies, NASDAQ listed smaller cap Chinese ADRs top the most overbought China stock universe. China BAK Battery (NASDAQ:CBAK) advanced $.44 or 10.5% on Tuesday with heavy underlying volume. The stock is overbought but can extend her rally on the short run if market sentiment remains positive.

Sina Corporation (SINA), the leading Chinese web portal, stands out with a $2.18 or 6.04% advance on Tuesday. Stock price of Sina at $38.25 is not terribly overbought, according to the overbought indicator. The big jump indicated by the arrow is a result of a remarkable rally in the last four trading days, where Sina Corp. (NASDAQ:SINA) advanced over 13% from the lows of under $34 on last Thursday. The rally was triggered after Sina (SINA) announced plans not to extend the deadline for acquiring the core assets of Focus Media (NASDAQ:FMCN), raising serious doubts that the merger would ever take place. Assuming that the deal is called off, stock price of Sina Corp. (NADAQ:SINA) can reach $40 next week should current rally continue.

Sohu.com (NASDAQ:SOHU) is caught on the radar screen as well, the third from the bottom, but Sina's rival went to a different direction in the past five trading days. But now that the deal between Sina and FMCN is over, Sohu.com (SOHU) is expected to move in tandem with Sina Corp., just as they did in the past. See Sina vs. Sohu YTD chart. Both Sina corp. (NASDAQ:SINA) and Sohu.com (NASDAQ:SOHU) are from the same breed, making a living off online advertisement. And while Sina has making progress in squezzing more profit out of advertisement Sohu.com (SOHU) made a killing off Changyou.com (NASDAQ:CYOU), Sohu's online game unit. See related article "Changyou is the profit center for Sohu". If history can be a guide in predicting future price development, expect Sohu.com (NASDAQ:SOHU) go higher today, in tandem with Sina Corp. (NASDAQ:SINA).

Other stock of interest. NetEase.com (NASDAQ:NTES) and Asiainfo Holdings (NASDAQ:ASIA) have been leveling off. Focus Media Holdings (NASDAQ:FMCN) is a dark horse at this point. While the latest rally has lots steam, the true value of the company is till to be determined.  Focus Media Holdings (NASDAQ:FMCN) was trading above $60 at one point and while that level is far off, current teenies seem to be way too low from a fundamental point of view. Focus Media (FMCN) is not terribly overbought at this point, leaving room for moving to either direction.

Most overbought China stocks

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Looking at the other end of the spectrum, e.g. most oversold Chinese ADRs, Chinese solar companies continue bleeding. China Telecom (NYSE:CHA), the largest Chinese fixed line carrier, has leveled off but remains an under priced value stock under $50. Guangshen Rail (NYSE:GSH) and Huaneng Power (NYSE:HNP) are similar value stocks at bargain prices. But watch out for Aluminum Corp. of China (NYSE:ACH) in addition, this metal maker is subject to wide price swings as commodity prices fluctuate.

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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