China Automotive Systems (NASDAQ:CAAS) and WuXi Pharmatech (NYSE:WX) has been on the top of the most overbought China stock list for a long time. CAAS has advanced over 500% YTD with no signs of slowing down. But the overbought indicator suggests the stock has been overbought and is a high risk / high return play at this time, with emphasis on the HIGH RISK.
The rally of WuXi PharmaTech (NYSE:WX) looks more sustainable from a technical and a fundamental point of view. If you look up the 5 year price chart for CAAS, you'll get a heart attack. The chart suggests a painful correction may come in any minute. This is in sharp contrast to WuXi's 5 year chart where investors find solace in the relatively modest rate of price increase in the last 52 weeks. Now considering fundamentals, WX looks better suited for a sustainable rally to me. CAAS reported a very strong Q3 growth setting the bar extremely high for the company. With an 80% plus revenue and 300% plus profit growth in the third quarter chances are that Q4 numbers will be disappointing. WuXi reiterated 2009 Q4 revenue growth and raised 2010 revenue outlook - a strong statement looking forward.
Solarfun Power Holdings (NASDAQ:SOLF) has been on fire lately and earned her right to be the most overbought China solar stock this today. But the strength of the solar sector is universal and is expected to carry SOLF and the rest of the solar universe higher for the upcoming weeks.
China Eastern Airline (NYSE:CEA) made an impressive move yesterday after the company won final regulatory approval to acquire smaller Shanghai Airlines. The combined company will have over 50% market share above Shanghai's sky and will be the second largest carrier in China. Chinese airliners have been doing very well in the last 52 weeks - something that was captured by our solid Conservative portfolio.
AsiaInfo Holdings (NASDAQ:ASIA) was one of the best stocks of yesterday by advancing 5.49%. This stock was on the "Weekly Stock Buy and Sell List" since last Friday advancing over 7% in the last two days. This strong performance prompted a sell email alert yesterday.
Shanda Interactive (NASDAQ:SNDA) delivered a blockbuster third quarter financial report after the close yesterday. Most of the profits came from its online game unit, Shanda Games (NASDAQ:GAME), as expected. Looking forward the overbought indicator comes handy: Shanda is not overbought despite an impressive 6.5% advance on Tuesday.
Most online game developers and operators outperformed yesterday but the 6.88% advance from The9 Ltd (NASDAQ:NCTY) since the open on last Wednesday is unusual for this smaller cap player. This unusual move is captured by the following overbought indicator suggesting more upside is on the road.
Most overbought China stock list
We have three big losers on the other end of the Chinese stock universe. Linktone (NASDAQ:LTON) lost -19.07% yesterday following Q3 financial report. While a short term bounce back is always a possibility after such a dramatic drop, medium term outlook is extremely bleak for LTON.
China Finance Online (NASDAQ:JRJC) and KongZhong Corp. (NASDAQ:KONG) fell heavily in the last five trading days, something that the oversold monitor captured. Given that the fall is fundamentally driven, e.g. weak Q3 reports, and the huge underlying volume accompanying the dive, these stocks seem to be doomed for the medium term as well.
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.