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Index futures spell trouble for overbought China stocks

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OBOS_tumb_6_5(Oct. 15, 2009 - Chinavestor) With the DJIA over 10,000 and index futures pointing to a lower open, investors better pay attention to overbought Chinese stocks this morning.

Chinese oil majors had a strong day on Wednesday on top of the gains they recorded earlier this week. This in turn drove CNOOC ltd. (NYSE:CEO) and Petrochina (PTR) into the danger zone. As the following chart testifies, Petrochina (NYSE:PTR) is now in the danger zone along with CEO and thus is ready for a correction. But with crude price still at near 2009 record, don't expect much of a dramatic fall for PTR. Rather, some weakness is more likely to come for Petrochina (PTR) and and longer term price momentum is contingent upon crude price.

AsiaInfo Holdings (NASDAQ:ASIA) jumped 15% yesterday making it to a combined gain of 25% for the last five trading sessions. AsiaInfo (ASIA) will report 2009 Q3 numbers on October 28 and thus a 15% jump a day is just no fundamentally underpinned. Considering that index futures point to a lower open, expect AsiaInfo Holdings (NASDAQ:ASIA) to retreat fast today.

 

For the rest of the China ADR list with the most momentum, see chart just below.

Most overbought china stock list

OB-1015

Looking at the most oversold China stock list, there is not much of a change from yesterday. American Oriental (NYSE:AOB) continues to top the list and with not much market momentum around, don't expect it to pop up just now. Shares of NetEase.com Inc (NASDAQ:NTES) dropped on Wednesday, signalling a longer term weakness for this online game developer and operator.  With the WoW deal falling apart, profit growth outlook for NTES is significantly lower. Regardless, NTES is a good company, the most profitable Chinese online gamer. At this point a $35 looks like the absolute bottom for this company, and a value buy under $37.

Last week overbought E-House Holdings (NYSE:EJ) has been showing weakness this week, just about to give up gains from the previous week.

Most oversold China stock list

OS-1015

expl-obos

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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