Nov. 5, 2009 (Chinavestor) Just as we indicated yesterday, Chinese momentum stocks continued to advance while oversold Sohu.com bounced back strongly. While this trend may continue for today, a slew of economic data, soon to be released, may change course for the market as a whole. From the stock level, investors should pay close attention to the following China plays that might move significantly: Shanda Interactive (NASDAQ:SNDA), Shanda Games Ltd. (GAME), The9 Ltd. (NASDAQ:NCTY), 51job Inc. (NASDAQ:JOBS), Aluminum Corp. of China (NYSE:ACH), Suntech Power (NYSE:STP), and UTI Starcom (NASDAQ:UTSI).
If you take a look at the following overbought China stock list, the strength of WuXi Pharma (NYSE:WX) and China Automotive Systems (NASDAQ:CAAS) comes as no surprise - see yesterday's overbought/oversold report. But the strong performance of Shanda Interactive (NASDAQ:SNDA) may come as a surprise, unless you pay attention to the performance of Shanda Games Ltd. (NASDAQ:GAME) as well. We have been arguing that GAME is a better play than SNDA based on the performance of SOHU vs. CYOU. Both Shanda Interactive (NASDAQ:SNDA) and Sohu.com (NASDAQ:SOHU) spun off their gaming unit and have been under performing compared to the online game unit since then. If you look at the split between Shanda interactive (NASDAQ:SNDA) and Shanda Games inc. (NASDAQ:GAME), see Google chart here, then it is obvious that such gap was opening too wide and too fast. While the gap is about to remain, dynamics of the opening has to be rational. Don't forget, Shanda Interactive (NASDAQ:SNDA) still retains the lion share of Shanda Games inc. (NASDAQ:GAME), effectively incorporating GAME's earnings into Shanda's books as well. In other words, don't expect GAME to take off and SNDA go bust. Instead, expect SNDA to follow GAME with a little gap.
The performance of The9 Ltd. (NASDAQ:NCTY) is somewhat a surprise. The exuberance is explained by the news that NetEase.com (NASDAQ:NTES) failed to get a licence to operated the WoW, giving way for speculations if The9 Ltd. (NASDAQ:NCTY) might be able to get it back. But at this point The9 Ltd. (NASAQ:NCTY) looks very speculative, and I suggest you not to touch it at this time.
China Life Insurance (NYSE:LFC) is a stock of interest to Chinavestor subscribers. LFC was on the Weekly Stock "BUY" list with a start price of $68.75 last Friday at 3:30. With a strong performance this week, we sent out a "SELL NOW" email alert, helping clients to realize a 6.5% gain. Another stock we advised to sell at 11:30 yesterday was China Finance Online (NASDAQ:JRJC). This stock represents a 7.5% return from last Friday.
If you want to know what other stocks we have on the list and more importantly what updates we're going to make to this list tomorrow,
Most overbought China stock list
Looking at the most oversold China stock list, watch how fast Sohu.com (NASDAQ:SOHU) got off the list. While SOHU was the most oversold stock yesterday - and we pointed out that a turnaround is on the corner - the 4.66% run on Wednesday got SOHU off the chart right away. Instead, watch out for the following stocks.
Aluminum Corp. of China (NYSE:ACH) is a true value stock that deserves better. Aluminum Corp. of China (NYSE:ACH) is the third largest aluminum maker in the world with strong demand for its products in China. With the price of aluminum on the rise, I see a potential 30%-50% upside for this stock. For details, please read the November Newsletter: Earnings Season is on for China stocks".
We have been pointing out the weakness of the Chinese solar sector for weeks. Canadian Solar and other smaller cap China solar stocks popped already, but the bang is going to come from larger names. Suntech Power (NYSE:STP) raised revenue guidance yet is under appreciated. I see some hidden gem in Suntech Power (NYSE:STP) and other China solar stocks.
Weakness of UTI Starcom (NASDAQ:UTSI) is apparent from the oversold list. The stock just entered below her trading range, suggesting there is more left to the downside. Don't touch UTI Starcom (NASDAQ:UTSI) today.
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.