(October 2, 2009 - Chinavestor) Running the overbought / oversold indicator each mornings gives investors an idea where the market is heading. No surprise, the 200 points drop in the DJIA yesterday had a devastating effect on Chinese ADRs. The once barren and dull oversold chart is full of action today. But here is the beauty. When the market will turn around, and that might be off a few more days, oversold stocks tend to lead the rally and thus it is wise to keep your eyes on these China stocks. With that said 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.
Aluminum Corp. of China (NYSE:ACH) is the most oversold China play today followed by China Telecom (NYSE:CHA) and China Sunergy (NASDAQ:CSUN). Another set of stocks of interest are Sinopec (NYSE:SNP), China Life Insurance (NYSE:LFC) and Petrochina (NYSE:PTR) because while they're approaching the oversold level, the magnitude of their decline cries out for a correction. But to say they'll turn around today is foolish, because that is dependent on market sentiment. However when markets will go head north again, watch out for these large cap blue chips.
Most oversold China stock list
Most of the action is taking place on the oversold screen, but there are some important developments taking place among overbought Chinese stocks as well. Small cap Hurray! Holdings (NASDAQ:HRAY) jumped $.25 or 6.67% on Thursday with heavy volume. Looking at the overbought chart below, Hurray! Holdings (HRAY) is not overbought yet and given the significant underlying volume, the rally may well continue into Friday.
As we pointed out in the overbought/oversold report yesterday, "But every rally comes to an end eventually, and with a 63.37% run just in the last five days, CBAK is certainly in a danger zone." Negative market sentiment didn't help either, sending shares of CBAK down 12.73%.
Another good call from that report from yesterday was Rino Internatinal (NASDAQ:RINO). We said "The overbought/oversold indicator works best when a stock has at least 52 weeks market history, something that Rino is clearly missing. In other words, be very careful with RINO because above $20 the stock is under pressure." and Rino lost 8.9% to $19.25 at the end of the day. What's coming next is moment of truth for Rino Int. (RINO). The big question is whether the stock can firmly establish a stock price above $18 or not. Based on technical indicators it is quite possible. If not, then Rino may just fall back to the $14 level.
Most overbought 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.