(Oct. 5, 2009 - Chinavestor) Chinese stocks will have to work hard on Monday to get back on their feet with a lot of uncertainties surrounding the American market. The grim jobs report on Friday delivered a blow to bulls but investors are embracing the ISM reports hoping to see signs of stabilization in the services industry. Either way, the DJIA ended lower two weeks in a row raising more uncertainty whether the market is going to deteriorate further. The good news is that with earnings season in the corner, we don't have to wait too much to get better visibility.
When it comes to Chinese stocks, NASDAQ listed smaller cap names continued their volatile trading pattern.
China TechFaith Wireless (NASDAQ:CNTF), a small cap Chinese wireless communications product provider, advanced $.013 or 4.23% on Friday making it one of the best performers of the day. Yet the stock closed lower for the week as price erosion continued after the lat big jump on Sept. 22. Looking at CNTF from a technical point of view, the stock is now trading at the higher end of her trading range. China TechFaith (NASDAQ:CNTF) advanced 150% YTD but considering that the stock lost 80% since her IPO in May 2005, it is apparent that investors have hard time determining the true value of CNTF.
When it comes to the weekly performance, Hurray! Holdings (NASDAQ:HRAY) towers over the overbought China stock chart. The stock advanced both on Thursday and Friday, defying negative market sentiment, and making investors think what's behind such a strong showing. It looks as if hot money is chasing smaller cap Chinese stocks again. If this is the case, my suggestion is to stay away from such a manipulative stock.
Rino International (NASDAQ:RINO) advanced over 7% last week and ended the week on high tone with a $1.55 or 8.05% jump on Friday. The stock price of Rino is up more than 100% since her IPO in July this year, making investors think where the short term ceiling may be. Looking at the overbought indicator for Rino International (RINO), the stock trades well above her trading range - but is still far from theoretical high. But it is important to understand that the overbought indicator works best for stocks with at least 52 weeks market history, which is not the case for Rino Int. (NASDAQ:RINO). In turn this means that Rino is overbought and might have just hit the ceiling at around $20 - at least for the short term. The earnings season typically come a month later for Chinese companies, a time when investors will get a better perspective of Rino international (NASDAQ:RINO).
China BAK Battery (NASDAQ:CBAK) ended Friday lower and came off over 13% from Wednesday highs. But the stock is still up for the week and might challenge the $5 range again. The stock is not terribly overbought, leaving more room for the upside.
For the rest of the momentum Chinese stock universe, see chart below.
Most overbought China stock list
Value investors should pay close attention to the most oversold China stock list below. Negative market sentiment took a toll on large cap NYSE listed Chinese plays, offering some at lucrative discount. Aluminum Corp. of China (NYSE:ACH), China Telecom (NYSE:CHA) and China Petroleum & Chemical Corp. known as Sinopec (NYSE:SNP) are trading near theoretical highs, something that doesn't happen too often. The weekly drop of $4.16 or 4.8% for Sinopec (NYSE:SNP) is highly unusual and the stock is offering a turnaround opportunity, according to the oversold indicator. For a complete list of the most oversold China stock universe, see chart below.
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.