Jan. 19, 2010 (Chinavestor) Some of the most obvious call this morning are: Baidu.com (NASDAQ:BIDU) is overbought and expectations run high for The9 Ltd. (NASDAQ:NCTY) as well. Less obvious but important development is the relative strength of Giant Interactive (NYSE:GA) compared to Shanda Interactive (NASDAQ:SNDA) and NetEase.com Inc. (NASDAQ:NTES). The tale of the oversold chart on the bottom is a reminder that stocks can go down, not just up - see Rino International (NASDAQ:RINO) and Yucheng Technologies (NASDAQ:YTEC). China Life Insurance (NYSE:LFC) and E-House Holdings (NYSE:EJ) are oversold value stocks with good medium- and long-term potential.
Looking at the most overbought Chinese ADRs on Monday, Baidu.com (NASDAQ:BIDU) is getting the most attention - and for a good reason. Shares of the largest Chinese search engine company rose to record highs following news that Google may leave China giving up her 30% plus market shares to Baidu.com (NASDAQ:BIDU). But the overbought chart suggests that BIDU became overbought and might take a breather before heading north again.
The9 Ltd. (NASDAQ:NCTY) is another overbought China play. The company got a lift following the release of the World of Fighter (WoF), an online game resembling to the blockbuster World of Warcraft (WoW) - a title NCTY lost last year. But expectations pushed the stocks too far and a possible disappointment will have a disastrous effect on the stock price.
Giant Interactive (NYSE:GA) is a smaller NYSE listed China online game developer and operator. And while Giant Interactive (NYSE:GA) managed to eke out some gains for last week, industry leaders Shanda Interactive (NASDAQ:SNDA) and Netease.com Inc. (NASDAQ:NTES) fell double digits in percentage terms, spelling trouble ahead for the whole sector. Don't expect much improvement in Giant's price on Monday.
Most overbought China stock list
Yucheng Technologies (NASDAQ:YTEC) has been on the overbought indicator for the most part of December 2009 and the early part of November last year. While there was no explanation for such a stellar performance, investors bought into the stock in hopes of selling before the turn of the tide. When a stock runs up without a fundamental reason, rallies are short lived- evidenced by Yucheng (NASDAQ:YTEC) and Rino International (NASDAQ:RINO). Numerous Chinavestor Advanced members were seeking our advice on Rino Int. (NAASDAQ:RINO) last year. We remained cautious being fully aware of bottlenecks the company is coping with. The sudden fall last week is a reminder that Wall Street is a two way avenue: stocks can go up just as often as they fall.
China Life Insurance (NYSE:LFC) is a value stock that will not stay oversold for too long. E-house Holdings (NYSE:EJ) is a Chinese real estate stock that is beat up on credit tightening fears - but it looks that those fears are overblown and the whole sector deserves better. To see how much the sector is oversold, visit the ETF and index focused second part of the Pre-Market Report.
Most oversold Chinese stocks
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.