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Earnings Increase Volatility for Chinese Stocks

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buy_sell_2 Feb. 25, 2010 (Chinavestor) As the earnings season kicks into high gear for Chinese stocks increased volatility is sending stocks to extremes. NetEase.com Inc. (NASDAQ:NTES), one of the most profitable Chinese online game developer and operator, reported earnings after the close yesterday - sending shares of smaller players within the sector to extremes. Giant Interactive (NASDAQ:GA) and The9 Ltd. (NASDAQ:NCTY) appeared on the overbought monitor after significant momentum carried them higher on anticipation of strong result from NetEase.com Inc. (NASDAQ:NTES). Another example of earnings anxiety is caught within the solar sector. The number of oversold solar stocks has been on the rise - this time we have four Chinese solar plays on the oversold monitor. JA Solar (NASDAQ:JASO) is the latest addition to the list after Yingli Green Energy (NYSE:YGE), Canadian Solar (NASDAQ:CSIQ) and Solarfun Holdings (NASDAQ:SOLF). China Eastern Airlines (NYSE:CEA) has been  very strong and is expected to go higher on Thursday. Baidu.com (NASDAQ:BIDU) might have just got a catalyst from NetEase.com (NASDAQ:NTES) - increasing profit margin for her online advertisement during the fourth quarter.

 

Synutra International (NASDAQ:SYUT) is steeling the story - the stock has been on fire as the overbought chart indicates. One has to wonder where the ceiling just might be - but it's hard to tell based on this indicator alone. Sometimes a security is considered overbought after a sharp jump - as is the case with SYUT. Shares of Synutra Int. (NASDAQ:SYUT) advanced +29.5% since February 5, 2010. But 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.

Shares of Giant Interactive (NYSE:GA) has been on the rise and has more upside left - according to the overbought monitor. The same is true for The9 Ltd. (NASDAQ:NCTY), a small cap Chinese online game operator. Shares of The9 Ltd. rose over 8% on Wednesday but are still well within her trading range - suggesting more upside is on the table.

China Eastern Airline (NYSE:CEA) has been very strong and is captured by the overbought monitor this morning. What's very encouraging is strong money flows in its home market, Hong Kong. H-shares of China Eastern Airline (HKG:0670) advanced +2.3% on Thursday, making it the best performer among the 42 components of the Hang Seng Index. Shanghai is going to host the World Expo exhibit opening in May 2010, ready to welcome tens of millions of visitors from all over the world. Given that China Eastern Airlines (NYSE:CEA) commences over 50% of the air above Shanghai, after merging with smaller rival Shanghai Airliners at the end of 2009, expectations run high that CEA is going to immensely  benefit from the expo.

Shares of Baidu.com (NASDAQ:BIDU) ran up to $500 after strong earnings but is looking for a reason to go higher. NetEase.com (NASDAQ:NTES) reported strong revenue and earnings growth with a healthy increase in online advertisement margins. This might be a catalyst that Baidu.com was waiting for. Whatever will happen one thing is for sure: BIDU is not overbought at this point leaving room to the upside.

Most overbought Chinese stocks

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The increasing number of Chinese solar stocks in the oversold monitor tells investors: be careful before the big guns of the sector start reporting earnings in March. And while investors have been selling solar plays, it looks to me that here is some opportunity for the smart investor. Canadian Solar (NASDAQ:CSIQ), JA Solar (NASDAQ:JASO) and Solarfun Holdings (NASDAQ:SOLF) are volatile Chinese stocks. If LDK Solar (NYSE:LDK), Trina Solar (NYSE:TSL) and Suntech Power (NYSE:STP) are going to be just as good as JA Solar has been, expect these small cap solar stocks to fly! This is a high risk high reward situation, something that may be worth taking. Investors have to use their own judgement - we're just highlighting an opportunity.

Most oversold Chinese stocks

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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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