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Xtreme volatility for China stocks as year nears end

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buy-sellDec. 23, 2009 (Chinavestor) How do investors react when a stock jumps 90% in just one day? This must be an ADR. Most likely Chinese... And they are right, we have seen SEED advancing over 100% in three days at the end of November and then CIIC on Tuesday. Besides extreme movers investors have to watch out for stocks that have sustainable momentum. Contenders for such category include Cogo Group (NASDAQ:COGO), Mindray Medical (NYSE:MR), and UTI Starcom (NASDAQ:UTSI) according to the overbought monitor. Oversold stocks ready to bounce back include Baidu.com (NASDAQ:BIDU), Aluminum Corp. of China (NYSE:CH) and Petrochina (NYSE:PTR), according to the oversold report.

While I personally thought China Infrastructure Development (NASDAQ:CIIC) will be blown off the overbought chart after a 90% jump yesterday but mathematics tells it differently. CIIC is the third China ADR at the moment, measured by the distance between current price vs. theoretical high price. The third position from the top is explained by stock characteristics, e.g. sudden big moves in the past. This tells investors that you better quit now else prepare your stomach for a bumpy ride! The only thing I regret is not nominating CIIC on the Weekly Stock Buy List. But again, who knew?

China Sky One Media (NASDAQ:CSKI) was the most overbought China play yesterday, so a -4.11% pull back is a no surprise. Post-market trading suggests the stock is going to fight current $20 range.

Cogo Group (NASDAQ:COGO) has been creeping up since November and it looks that there is more room left to the upside.

Mindray Medical ((NYSE:MR) is a stock with strong fundamentals and technicals, expect it to do well beyond 2009.

UTI Starcom (NASDAQ:UTSI) has been strong since Friday, is up 20.9% since then, and has more upside left, according to the overbought monitor this morning.

Most overbought China stock list

OB-1223

The oversold end of the China stock universe suggests Baidu.com (NASDAQ:BIDU) is going to fight its way back above $400 though profit taking at the end of the year is going to keep it under pressure. Baidu.com fell below $400 on Tuesday for the first time since November 6 and is now oversold.

Petrochina (NYSE:PTR) is another oversold value stock according to the indicator below. With oil advancing to $74.8 from $71 just last week, PTR has got additional incentive to bounce back off current lows.

Most oversold China ADR list

OS-1223

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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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