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Sluggish Earnings Hurt Overbought Chinese Stocks

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bear_1 Jan. 12, 2010 (Chinavestor) HQ Sustainable Maritime (AMEX:HQS), Aluminum Corp. of China (NYSE:ACH), Qiao Xing Universal Telephone (NASDAQ:XING) and CDC Corp. (NASDAQ:CHINA) are the four most overbought China stocks this morning, suggesting a correction is around the corner. The same analysis reveals that China Life Insurance (NYSE:LFC), Zhongpin Inc. (NASDAQ:HOGS), ATA Inc. (NASDAQ:ATAI), Nam Tai Electronics (NYSE:NTES) and Baidu.com (NASDAQ:BIDU) are oversold to a certain degree and are stocks of interest for the intelligent investor.

Before investos jump into quick conslucion, it is important to see the definition. 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 below. 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.

Most overbought Chinese stocks

OB-2010112

Looking at the most oversold end of the Chinese stock universe, HOGS, LFC, ATAI, NTE and Baidu.com are stocks of interest. HOGS wentfrom the overbought indicator to the oversold yesterday following the 15% drop on Q4 earnings outlook. While it is too early to tell if the downward trend is here to continue, one thing is for sure: despite a significant drop on Monday, Zhongpin is still trading within her trading range and is NOT extremely oversold.

Nam Tai Electronics (NYSE:NTE) is a stock to watch out. The stock hit bottom or is very near to it - according to the oversold monitor below. 

Most oversold Chinese stocks

OS-2010112

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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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