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Earnings, market sentiment to drive China stocks

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money_4Nov. 10, 2009 (Chinavestor) Strong market day on Monday lifted most Chinese shares but oversold NASDAQ names took the lead. Stocks mentioned in this report include:JA Solar Holdings (NASDAQ:JASO), Yanzhou Coal (NYSE:YZC), WuXi PharmaTech (NYSE:WX), China Automotive Systems (NASDAQ:CAAS), Tongxin International (NASDAQ:TXIC), China Life Insurance (NYSE:LFC), Baidu.com (NASDAQ:BIDU), Sohu.com (NASDAQ:SOHU), China Mobile (NYSE:CHL), and China Eastern Airline (NYSE:CEA). JA Solar Holdings (NASDAQ:JASO) advanced 11.05% ahead of Q3 earnings on Monday. The company is going to report earnings ahead the bell at 8:00. Call in number is:1.800.299.0433. JA Solar Holdings (NASDAQ:JASO) was on the latest weekly stock buy list, sent to Chinavestor Premium service subscribers last Friday at 3:30 P.M. , to buy at $3.70. The 10 percent plus rally prompted a SELL email alert on Monday. While there may be more to the upside, especially if earnings beat expectations, a ten percent gain within days is too good to miss.

China Grentech Corp (NASDAQ:GRRF) is another China play that poped on Monday, was on the list from last Friday, and propted a SELL email alert.

The stock to watch today is Yanzhou Coal (NYSE:YZC), the third largest coal miner in China. The stock rose 18 percent in the last five trading sessions, a very aggressive move from a NYSE listed large cap China play. As the following overbought indicator suggests, Yanzhou Coal (NYSE:YZC) became over bought and is ready to level off or turn south. While exact timing is always difficult, expect shares of Yanzhou Coal (NYSE:YZC) to follow market sentiment today but succumb to profit taking within days.

WuXi PharmaTech (NYSE:WX) and China Automotive Systems (NASDAQ:CAAS) have been very similar from a technical point of view for the last few month. WuXi PharmaTech (NYSE:WX) advanced 11% in the last five trading days, a technical strength clearly reflected on the overbought monitor. While WuXi PharmaTech (NYSE:WX) is not as overbought as Yanzhou Coal (NYSE:YZC), upside is limited for the pharma company in the short term. Expect WX to follow market sentiment on Tuesday.

China Automotive Systems (NASDAQ:CAAS) is just as over bought as WuXi Pharma (NYSE:WX) and as such her upside is limited for the short run. Exploding auto sales in China continue to propel car makers higher in Hong Kong and Shanghai, a fact that helps China Automotive Systems from a fundamental point of view. Another car related China stock is Tongxin International (NASDAQ:TXIC), a low key cab manufacturer for the commercial auto segment. Tongxin Int. (NASDAQ:TXIC) has just reported strong earnings growth on Monday yet her stocks have been way behind that of China Automotive Systems (NASDAQ:CAAS) - see five days Google comparative chart. This implies that CAAS may be too expensive and TXIC might be the stock to own for the short run.

China Life Insurance (NYSE:LFC) has been another hot stock for 2009. The company returned to healthy revenue growth in September while earnings improved more on hefty investment returns. China Life Insurance (NYSE:LFC) got preferential treatment back in 2007 when Petrochina (NYSE:PTR) (SHA:601857), ICBC (SHA:601398) and other Chinese blue chips got introduced into the Shanghai Stock Exchange, guaranteeing strong returns on equity investments. Now that the Shanghai Composite Index is back on track, expect investment income to shine for China Life Insurance (NYSE:LFC). All things considered, LFC has more upside left for the short and the mid-term.

Baidu.com (NASDAQ:BIDU) is another widely traded China play. Despite a $16.13  advance on Monday, BIDU is far from being overbought! Baidu.com (NASDAQ:BIDU) is on the low end of the most overbought China stock list, a bullish statement for the largest NASDAQ listed China stock. Shares of Baidu.com (NASDAQ:BIDU) got hammered after lowed Q4 revenue guidance, just as did for Sohu.com (NAADAQ:SOHU). And while Baidu.com have recovered most of her losses since the big dip, Sohu.com (NASDAQ:SOHU) has not been catching us just as fast. This in turn makes a case for Sohu.com (NASDAQ:SOHU), a stock that was the most oversold China play just a week ago. We made several strong statements last week that SOHU was way oversold and deserved better. While share have advanced over 8% since last Tuesday, SOHU has more ground to make up.

Most overbought China stock list

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We have just mentioned Sohu.com (NASDAQ:SOHU) along with Baidu.com (NASDQ:BIDU) within the context of the overbought list - see above. China Mobile (NYSE:CHL) is another China play that deserves better.The whole Chinese telecom sector has been under pressure for 2009 due to lack of 3G subscriber growth. But nothing is going to keep China's telecom market from going forward and smart phones will eventually dominate the landscape. China Mobile (NYSE:CHL) is the largest carrier by far, boosting a subscriber base of over 500 million. Once CHL has the right phone - capable of converting current 2G customers to 3G - expect shares of China Mobile (NYSE:CHL) to skyrocket.

China Eastern Airline (NYSE:CEA) is another China play that's been moving away from the oversold position. There is a case for China Eastern Air (NYSE:CEA) despite all the challenges. CEA dominates the skies above China's financial hub, Shanghai. The company had received a significant cash infusion from the government at the depth of the financial crisis and passenger traffic bounced back up in China while price of oil is still below 2008 levels. Expect Chinese airliners to report strong Q3 and Q4 numbers.

Most oversold 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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