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Earnings Season for China Stocks at its Best

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economy3Oct. 28, 2009 (Chinavestor) Chinese companies are reporting earnings at a fast pace. Baidu.com (NASDAQ:BIDU) reported strong but missed guidance and fell. Sohu.com (NASDAQ:SOHU) is in a similar shoe. Tongxin International (NASDAQ:TXIC) fell hard and became the most oversold China ADR while China Sunergy (NASDAQ:CSUN) is a good representative of the oversold Chinese solar industry. But today is about NYSE listed China stocks such as Aluminum Corp. of China (NYSE:ACH) that returned to profitability along with China Eastern Airlines (NYSE:CEA). Petrochina (NYSE:PTR) missed estimates but Sinopec Shanghai Petrochemical (NYSE:SHI) reported better hen expected. SMIC (NYSE:SMI) guided higher for the fourth quarter.

 

But the question is this: earnings or market sentiment is going to dominate today's trading. Based on the performance in Hong Kong, market sentiment is a stronger force. Despite positive earnings, H-shares of Aluminum Corp. of China (NYSE:ACH) (HKG:2600), China Eastern Airlines (NYSE:CEA) (HKG:0670), and Yanzhou Coal (NYSE:YZC) (HKG:11710 fell. It was only Sinopec Shanghai Petrochemical (HKG:0338) (NYSE:SHI) that managed to gain in Hong Kong on Wednesday.

If market sentiment will dominate, technicals become extremely important. This is when the overbought/oversold indicator comes handy. By looking at momentum China stocks, the list is very light for today. Only four stocks show signs of momentum: Yanzhou Coal (NYSE:YZC), China Life Insurance (NYSE:LFC), CNOOC Ltd. (NYSE:CEO) and 51job Inc. (NASDAQ:JOBS). But considering the weak performance of YZC in HK today and the falling oil prices, which serves as a quasi proxy for coal prices in China, Yanzhou Coal is in trouble for today. China Life (NYSE:LFC) fell hard in Hong Kong as well but fundamentals are on his side. CNOOC ltd. (NYSE:CEO) is on shaky ground as oil is below $80 a barrel and is going downhill. JOBS is light weight and is giving up gains of a previous pop.

Most overbought China stocks

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But this is what China stock investors should be concerned about - most oversold stocks. Stocks that lost momentum and show weakness.

Baidu.com fell hard on Tuesday but as we predicted, made a comeback from the open. Baidu.com (NASDAQ:BIDU) opened under $355 and ended the day at $383.66. If you followed out advice, you're up 10%for the day - see yesterday's article "Expect Baidu to bounce back Tuesday morning".

China auto stocks fell hard, as is evidenced by Tongxin International (NASDAQ:TXIC). The stock lost 24% in the last five days as investors abandon China auto plays. China Automotive Systems (NASDAQ:CAAS) is another China auto play that is beat up for no apparent reason. Tongxin Int. (NASDAQ:TXIC) is trading at the theoretical lows and at the low end of her trading envelope, suggesting a bottom is near.

Sohu.com (NASDAQ:SOHU) and E-house Holdings (NYSE:EJ) are screaming off the chart as well. But if you play close attention to the list, China Sunergy (NASDAQ:CSUN) is the stock that is trading well below her trading range. The whole Chinese solar sector is oversold and unappreciated, offering entry positions for the value investor. China Sunergy (NASDAQ:CSUN) is just one of the four Chinese solar makers on the oversold list.

Sinopec Shanghai Petrochemical (NYSE:SHI) is on the oversold list, but with a strong earnings and performance in Shanghai and Hong Kong, expect SHI to do well today. When fundamentals fuel oversold stocks, as is the case with Sinopec Shanghai Petrochemical, expect a good 5-10% upside on the short term.

Most oversold China stock list

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And finally, here is a list of the most volatile China stocks: Sohu.com (NASDAQ:SOHU) is towering the list followed by E-house Holdings (NYSE:EJ), Tongxin int. (NASDAQ:TXIC) and Cogo Group (NASDAQ:COGO). But important to notice that Aluminum Corp. of China (NYSE:ACH) is among those that lost the most in relative terms - yet the company reported strong earnings. Expect a bounce back in the near term. And finally, pay attention to Baidu.com (NASDAQ:BIDU) because despite huge losses in dollar terms, BIDU is holding up relatively well. Baidu.com (NASDAQ:BIDU) is still trading within her trading range and with strong earnings but weak Q4 outlook, I expect BIDU to trade in the high $300 or low $400 range soon.

Most volatile China stock list

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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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