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Baidu to lift Chinese internet stocks

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baidu_logo Feb. 11, 2010 (Chinavestor) Despite an erratic trading week, quality Chinese stocks have started to climb higher. Better-then-expected earnings helped the largest and most liquid Chinese internet stock, Baidu.com (NASDAQ:BIDU), to jump $47.12 or +10.8% on Wednesday, suggesting other internet plays will get a lift down the road. Stocks that are most likely to benefit from Baidu's strong showing are Sina Corp. (NASDAQ:SINA), Sohu.com Inc. (NASDAQ:SOHU) and NetEase.com Inc. (NASDAQ:NTES) among others. These three companies derive significant portion of their revenues from online advertising besides Baidu.com (NASDAQ:BIDU). Momentum stocks to watch include  China Fire & Security Group (NASDAQ:CFSG), Synutra International (NASDAQ:SYUT) and Jinpan International Ltd. (NASDAQ:JST).

But investors will have to exercise cation because after the 10% jump Baidu.com became overbought, according to the chart below. Any potential correction will be just for the short term though and should not be regarded as a long term bearish signal.

China Fire & Security (NASDAQ:CFSG), Synutra International (NASDAQ:SYUT) and Jinpan Int. Ltd. (NASDAQ:JST) have moved up significantly over the past few days as the following overbought chart testifies. Despite a sizable lift, none of these stocks are trading above their trading envelope. This is the good news. But significant advance is a double edged sword. While trading pattern projects sustainable momentum, a negative market day tend to hurt momentum stocks the most. So investors will have to keep overall market sentiment in mind before engaging Syntura Int. (NASDAQ:SYUT) or Jinpan International (NASDAQ:JST).

Most overbought China stock list

OB_2010211

The oversold end of the China stock universe is less exciting at the moment. Most of the action has been captured by the overbought chart. Exception is Nam Tai Electronics (NYSE:NTE), a stock that fell -9.6% in the last five days following worse-then-expected earnings. This suggests the downward trend is here to continue, at least for the next few days. For the rest of the oversold China stock list, see chart below.

Most oversold Chinese stocks

OS_2010211

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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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