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It's all about earnings for China stocks this week

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money8Nov. 11, 2009 (Chinavestor) Looking at names from the China stock universe from a technical point of view, there is not much of a change from yesterday. Stocks of interest for today include Ctrip.com (NASDAQ:CTRP), HSBC Plc. (NYSE:HBC), China TechFaith Wireless (NASDAQ:CNTF), China Unicom (NYSE:CHU) , Yingli Green Energy (NYSE:YGE), and The9 Ltd. (NASDAQ:NCTY).

It pays out reading the overbought/oversold monitor right, as was demonstrated on Tuesday, again. Yanzhou Coal (NYSE:YZC) became overbought - a red flag - and prompted a sell email email alert to premium member subscribers. On the same time, we said WuXi Pharma (NYSE:WX) and China Automotive Systems (NYSE:CAAS) will follow market sentiment on Tuesday. And so they did. But by doing so, both WX and CAAS are now in the danger zone according to the chart below. This in turn suggests that short-term upside is limited for both stocks.

Ctrip.com (NYSE:CTRP), the best Chinese online travel agency, is going to report third quarter earnings after the close today. There is a lot of expectations ahead the announcement propelling CTRP shares higher. Despite a sizable gain in the last five trading day, Ctrip.com (NASDAQ:CTRP) advanced 21.8% since last Wednesday, the stock is not overbought yet. This in turn gives room for a potential upside should earnings exceed expectations. On the other hand, one way of playing CTRP safe is by selling it right at the end of the trading session today. This way you get the gain from excitement yet are not exposed to a possible dip after earnings. The problem for CTRP is that expectations may run too high, something the company might not be able to satisfy.

HSBC Plc. (NYSE:HBC) is not your typical China stock yet it is a stock we follow at Chinavestor. Reason being that it has a large footprint in the Chinese bank system and is a Hang Seng index heavy weight. HSBC Plc. (NYSEHBC) reported better then expected Q3 numbers and advanced significantly, yet the stock is not overbought yet. if you want to diversify into Chinese financials, HSBC Plc. (NYSE:HBC) is an alternative vehicle to do so. Another way to expose your portfolio to Chinese financials is by adding the iShares FTSE/Xinhua china 25 Index (NYSE:FXI) to your portfolio. Read How to use FXI for diversification.

China TechFaith Wireless (NASDAQ:CNTF) has moved significantly over the last five trading days but came to a halt on Tuesday. Current strength is explained by anticipation ahead the upcoming earnings report. China TechFaith Wireless (NASDAQ:NCTY) is going to report third quarter earnings on November 23 after the close. This volatile China play is going to be difficult to play right, but investors with high risk tolerance should pay attention to this stock. Based on the overbought chart below, China TechFaith Wireless (NASDAQ:CNTF) has more upside potential before earnings.

The relative strength of China Unicom (NYSE:CHU) among Chinese telecom players, see related Google chart,  is caught by the overbought indicator. We have long been arguing that the Chinese telecom sector is way oversold and under valued. China Unicom (NYSE:CHU) got a Goldman upgrade to BUY but given the dynamics within the sector, China Mobile (NYSE:CHL) is at least as a good buy as China Unicom (NYSE:CHU), according to Chinavestor analysts. There is a of of room left for both China Unicom (NYSE:CHU) and China Mobile (NYSE:CHL) in the near term.

Most overbought China stock list

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The other end of the spectrum, e.g. most oversold China plays, Yingli Green Energy Holdings (NYSE:YGE) is a stock of interest for today. The Chinese solar sector is another undervalued segment with stock that have a lot of upside potential. JA Solar (NASDAQ:JASO) reported much stronger then expected Q3 numbers and improved outlook for Q4. LDK Solar (NYSE:LDK) issued higher revenue guidance just two weeks ago. Some Chinese solar stocks have started to pop up but the sector as a whole remains undervalued. Industry heavy weight Suntech Power (NYSE:STP), LDK Solar (NYSE:LDK) and Trina Solar (NYSE:TSL) are going to report Q3 in November, a possible catalyst for the sector. Yingli Green energy (NYSE:YGE) is due to report on November 13, and based on what's out there, expect YGE to blast through previous expectations. Based on the oversold monitor, Yingli Green Energy (NYSE:YGE) has a lot of upside left before and possibly after earnings announcement.

The9 ltd. (NYSE:NCTY) is screeming off the oversold chart below. The copany is going to report Q3 numbers on November 24 after the close. With its flagship title, the World of Warcraft, in limbo don't expect anything but bad news from The9 Ltd. (NASDAQ:NCTY). Now that NetEase.com (NASDQ:NTES) lost a licence to operate the game in China, NCTY might give it another try. However it will be too late to make a difference in Q3 numbers for The9 ltd. (NASDAQ:NCTY), increasing the downside risk for the company.

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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