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China stocks prepare for slow Thanksgiving week

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turkey_1Nov. 24, 2009 (Chinavestor) With a big earnings day behind us China stock investors should embrace themselves for a momentum driven market day. But don't expect too much of action today with Thanksgiving on the corner. Stock mentioned in this report include Solarfun Power Holdings (NASDAQ:SOLF), Canadian Solar (NASDAQ:CSIQ), and Tongxin Int. (NASDAQ:TXIC). Going stock specific, two China stocks generated a lot of excitement on Monday: LDK Solar (NYSE:LDK) and 51job Inc. (NASDAQ:JOBS). Despite a strong showing, none of them are overbought at the moment, suggesting additional upside. 

However taking a closer look at these two companies an interesting difference emerges. Strong results from LDK Solar (NYSE:LDK) are perfectly in line with the rest of the solar sector. This is in sharp contrast to the numbers of 51job Inc. (NASDAQ:JOBS) where its' difficult to tell what moved the stock up 14% on Monday: financial results or the resignation of its CFO... Read Don't touch JOBS - our related coverage.

Going back to the solar sector, one of the most important developments besides strong earnings is that despite double digit gains, solar stocks remain cheap! According to the overbought stock chart below, Solarfun Power (NASDAQ:SOLF) and Canadian Solar (NASDAQ:CSIQ) are the two most overbought China solar plays at the moment. But as the chart testifies both have additional upside left. LDK Solar (NYSE:LDK) is still trading within its normal trading range, though it moved to the higher end of the trading envelope. High debt may be an issue for solars in the long run, something that's worth paying attention to, but at the moment the China solar plays got a green light.

Tongxin International (NASDAQ:TXIC), the stock on the bottom of the overbought chart, is far from overbought but is a stock that managed to advance in the last five trading days and made it to the chart. There is not much fanfare about this Chinese commercial auto parts maker yet the company managed to report a 18.8% revenue growth while profits jumped 83.4%. This is no match for the growth of China Automotive Systems (NASDAQ:CAAS) but considering that Tongxin Int. (NASDAQ:TXIC) is trading at a P/E one tenth that of CAAS, TXIC offers entry position for the value buyer.

China Life Insurance (NYSE:LFC) jumped over 3% on Monday - a stock that is on the "Weekly Stock Buy List" available for Advanced Subscribers. Despite China Life trading above its normal trading range, current stock price is far from theoretical highs - suggesting more strength is on the way.

Most overbought China stock list

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There is not much activity on the oversold China stock screen today. No China ADR is trading close to theoretical lows, rendering this screen not much of a use for today's trading day.

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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