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Watch out for momentum China stocks!

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buy-sell(Oct. 9, 2009 - Chinavestor) Strong market days like yesterday keep momentum going on for Chinese stocks. But as the following overbought indicator suggests, investors have to be careful with stocks that became too hot because when market sentiment shifts, these ADRs are likely to get hurt the fastest and the most.

I wrote a lot about Focus Media this week, let's just say this now: If you made profit, take some of it off the table NOW. 

Cogo Group Inc. (NASDAQ:COGO) is another story. This stock has made three significant, unusual jumps this month alone, on no particular news. This can be two things: Cogo Group (NASDAQ:COGO) is either significantly undervalued and investors rediscover its intrinsic value from time to time, or hot money is chasing small cap Chinese stocks. Considering an analyst downgrade on Sept. 28, I'm inclined to say this is case #2, and if so then don't touch it. Stock price for Cogo Group (COGO) has fallen significantly the day following the big jumps, something that might just well happen today. If so, try to get out fast. From a technical point of view, COGO is in a danger zone and with no fundamental developments to back it up, Cogo Group (COGO) looks very vulnerable.

I want to talk about Baidu.com (NASDAQ:BIDU), this large cap Chinese NASDAQ stock. I told you to sell BIDU  yesterday and I think  that was a good call. I said short term upside is limited, something that I still believe is true. Looking at index futures at 8:20, market sentiment is not too bright before the open, suggesting Baidu.com (NASDASQ:BIDU) might suffer along other China plays. But listen, I said short term momentum, not long term. For a longer term I'm bullish on Baidu for her excellent growth, quality earnings and proven track record of delivering profits not just presenting potential.

E-House (China) Holdings Ltd. (NYSE:EJ) is another stock I liked at the end of last week. This is why this stock made it into the "Weekly Stock List", sent out to subscribers to "Advanced Membership". E-House (NYSE:EJ) made a quick 10% by Tuesday 11:00 AM, prompting a "SELL" email alert to clients. E-House Holdings (NYSE:EJ) looks to plateau at current $23.50 with not much upside left for Friday. If EJ will make it to next week's list of recommended stocks depends on trading today. My suggestion is though if you made profit, cash out because there is nothing wrong with taking profits.

It's Friday, time to pick stocks for next week!  If you want to know what other stocks I have in mind for the Weekly Stock Recommendation and want to receive e-mail alerts when to buy and sell them, subscribe to Advanced membership now. See subscriber benefits on the "Premium Content" page.

E-House (EJ) is very similar to Ctrip.com (NASDAQ:CTRP) from an overbought/oversold point of view. Additionally, Ctrip.com (CTRP) made it to the Weekly Stock Recommendation as well, and after a 10% run prompted a SELL email alert on Thursday. Looking at index futures pointing to a narrow open for the DJIA, yesterday's sell call might have been very well placed and the best opportunity to short this hot stock this week. This Chinese online travel company, Ctrip.com (NASDAQ:CTRP), has been on Chinavestor radar screen for a long time, first added to the "Growth portfolio" back in November 2008. since then Ctrip.com ran up over 100%, prompting a SELL from the portfolio as well.

Finally, take a look at Tongxin Int. (TXIC), this small cap Chinese truck cab manufacturer. With a 10% run on Thursday, TXIC made it to the most overbought China stock list despite limited stock market history. I had a chance to meet Mr. Rudy Wilson CEO and the rest of the management team of Tongxin International Ltd. (NASDAQ:TXIC) at the Rodman & Renshaw Investors Conference in NYC in September. They are professionals, and if the company can deliver what it's been presenting, the future will be bright for TXIC. For long term investors, this might be a good opportunity to build some positions. But if your risk tolerance can't take such a small cap, unproven stock, just wait until TXIC graduates with a one year market history and delivers earnings. Then you might want to jump the Tongxin (NASDAQ:TXIC) wagon.

Most overbought China stock list

OB-109

The oversold china stock list is very interesting this morning. Uncertainties with the licencing of WoW, a blockbuster game Netease.com (NASDAQ:NTES) acquired from The9 ltd. (NASDAQ:NCTY), are putting immense pressure on Netease.com (NTES). The stock just fell 6.17% on Thursday, a bed omen before the Bell on Friday.

Most oversold China stock list

OS-109

expl-obos

 

 



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