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China stocks in danger

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obos-6-10-tumb(Oct. 21, 2009 - Chinavestor) There has been quite a bit of action within the China stock universe lately. A selected number of small cap stocks, Linktone (NASDAQ:LTON) and The9 Ltd. (NASDAQ:NCTY), popped  from one day to the next and then went bust. Some are trading at 52 week high, China Automotive Systems (NASDAQ:CAAS), and investors wonder what they are going to do when market sentiment turns negative. The oversold list picked up New Oriental Education (NYSE:EDU) as an oversold stock that is expected to see a positive correction following yesterday's disastrous fall.

One way to find answers is by looking at the overbought indicator below. China Automotive Systems (NASDAQ:CAAS) popped on Monday and got additional support on Tuesday  - but became overbought and thus vulnerable. Considering that CAAS is up 256% YTD, the case for bulls becomes difficult to defend. Anything that's China auto related is hot following news that the number of passenger cars sold in China reached 1 million units in August. But investors have to exercise caution despite strong fundamental forces. China Automotive Systems (CAAS) is only one component from the myriad of China auto related players. Tongxin International ltd. (NASDAQ:TXIC) is another China auto related stock that hasn't run up that much lately, just to give investors an alternative.

WuXi PharmaTech (NYSE:WX) has been leveling off and is now at the mercy of market sentiment. Chinese oil producers, Petrochina (NYSE:PTR) and CNOOC Ltd. (NYSE:CEO), have leveled off as price of the crude snapped an eight day winning streak.

Linktone Ltd. (NASDAQ:LTON) popped last Thursday but failed to gain traction and has eroded most of the gains by Tuesday. With underlying volume back at normal levels, don't expect much from Linktone on Wednesday.

Another stock besides Linktone that made it to the "Weekly Stock List", distributed among Chinavestor Advanced Members, was The9 Ltd. (NASDAQ:NCTY). We failed to call it quits on Monday despite a 10% jump, but negative market sentiment took a toll on The9 on Tuesday.

Most overbought China stock list

OB-1021

The oversold China stock universe is just as interesting as the overbought one. New Oriental Education & Tech. Group (NYSE:EDU) gaped 10% down on Tuesday following in-line revenue guidance, but as the oversold indicator suggests, the drop was too big and EDU might just experience a positive correction. The Chinese education industry has started to attract more attention lately with smaller players such as ChinaCast Education Corp. (NASDAQ:CAST) entering the fray this year. New Oriental Education (EDU) and CAST boost strong cash position, the need for their product is strong, and are poised to keep growing. Something to keep in mind.

The Chinese solar sector remains undervalued whne oil is above $75 in my judgement. Two Chinese solar stocks are on the "Weeklt Stock List" this week -if you want to know which ones, you have to subscribe to Advanced membership. Visit "Premium Content" page for details.

Most oversold China stock list

OS-1021

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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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