(Oct. 20, 2009 - Chinavestor) Strong earnings set American markets on fire, helping China stocks to maintain strong momentum. expect momentum China stocks to continue to flex muscle under such positive market circumstances.
When it comes to momentum stocks, the overbought / oversold indicator comes extremely handy. By looking at the most overbought China stock universe, three stocks stick out with outstanding momentum: The9 Ltd. (NASDAQ:NCTY), Linktone Ltd. (NASDAQ:LTON) and Sohu.com (NASDAQ:SOHU).
Take a look at The9 Limited (NCTY) for one. The stock showed some strength last Thursday and Friday just to pop 12.11% on Monday on top of previous gains. The good news is that a possible pop was foretold to Chinavestor advanced members at the end of last week when NCTY made it to the "Weekly Stock List". We haven't called it quits yet, but subscribers will receive an email when we think the stock has reached it short term upside potential. Given the strong volume on Monday, we expect The9 Ltd. to do well on Tuesday.
Another stock that is screaming off the chart is Linktone ltd. (NASDAQ:LTON). This stock popped last Thursday, showering investors with a staggering 50% gain that day! Call it luck, but Chinavestor Advanced members were foretold the week before to buy Linktone! Assuming they did, and if they pay $59.50/month they better listen, then the email alert on Thursday urging them to SELL was a perfect call. Linktone was trading just above Friday's level on Monday and it looks that it's too late to touch LTON now.
And finally, we have Sina.com (NASDAQ:SINA) with a nice pop on Monday. This is attributed to an analyst upgrade and was not technically driven. Based on technicals, Sina has more upside left though, might want to jump the wagon.
China Automotive Systems Inc. (NASDAQ:CAAS) jumped 11.92% on Monday and is the most overbought China stock that the moment. Given the huge underlying volume on Monday, CAAS looks good from a technical point of view. One of the forces behind the stock is the record number of cars sold in China in August, topping 1 million for the first time. With a 7% GDP growth in the first nine months in China, China Automotive Systems (CAAS) has a strong case.
For other momentum China stocks, see chart below.
Most overbought China stock list
Most of the action is taking place on the overbought chart, but some oversold China stocks are worth paying attention to. American Oriental (NYSE:AOB) and the Chinese solar sector is undervalued and might offer hidden value for the intelligent investor.
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.