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Selected Oversold Stocks Deserve Better

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advance_8 March 5, 2010 (Chinavestor) Investors embrace the last day of the earnings heavy week for China stocks. Online gamers fell out of favor on Monday after industry leader Shanda Games (NASDAQ:GAME) and her parent Shanda Interactive (NASDAQ:SNDA) reported revenue growth but earnings fell. Perfect World (NASDAQ:PWRD) reported similar results on Monday. Giant Interactive (NYSE:GA) just released her numbers last night - revenue and earnings fell QoQ and YoY. You bet Giant will join the Shandas on the oversold screen soon. Spreadtrum Communications (NASDAQ:SPRD) reported 10.1% revenue growth and earnings more than tripled QoQ yet the stock fell along telecom makers - ZTE Corp. (HKG:0763) just fell -3.5% in Hong Kong.

Harbin Power (NASDAQ:HRBN) jumped to the top of the overbought list by Friday. Synutra International (NASDAQ:SYUT) looks similar to HRBN on the overbought chart below: they are aggressive though stock price is not excessive. Another set of stocks on the overbought screeen include Cogo Group (NASDAQ:COGO), China Fire & Security Group (NASDAQ:CFSG), E-House Holdings (NYSE:EJ), and GigaMedia Ltd. (NASDAQ:GIGM). These stocks have significant momentum but are trading within their trading range. This suggests their upside is not limited, at least for the short term. ReneSola Ltd. (NYSE:SOL) is the first solar company on the overbought screen as the sector recovers on strong earnings. Expect more solar stocks to appear on the overbought screen.

It's Friday again, time to update the "Weekly Stock Buy List". If you like our Overbought/Oversold report, you will love this! We combine technicals with fundamentals and risk to come up with two set of stocks: BEST and TOAST. The first list you get is the best momentum stocks from the China stock universe. They tend to carry over momentum for the week. Then you will have the list of the most oversold stocks that tend to pop up. We publish this list every Friday at 3:30 before the market closes so you don't miss out on any gap up on Monday morning. This is how it works: The idea is that you buy stocks from the Weekly Stock List each Friday at 3:30 P.M. before the market close. We're going to email you when to sell certain stocks throughout the week. For 2009 the combined return of the BEST and TOAST list is up +5.9% while the &P and the Hang Seng are in the red! Sounds like a good service? Visit Premium Content page for details how to join.

Most overbought China stocks

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VisionChcina Media (NASDAQ:VISN) lost a staggering -40% for the week as earnings rolled out. This story is a painful reminder that small cap China stocks are extremely vulnerable and are not for the faint hearted. No wonder the stock is number two on the oversold screen. Don't expect the stock to recover anytime soon.

Vimocro International (NASDAQ:VIMC) has been on a steady erosion throughout 2009. The stock price is approaching theoretical lows suggesting a reaction rally is coming. But when exactly is hard to tell.

Chinese online game stocks became oversold after online game Monday. This is when industry leader Shanda Games (NASDAQ:GAME) reported along with Perfect World (NASDAQ:PWRD). Despite a serious price correction we're of a view that Shanda Interactive (NASDAQ:SNDA) and Shanda Games (NASDAQ:GAME) are oversold and deserve better. Expect Giant Interactive (NYSE:GA) to join the oversold club soon - earnings look poor for this smaller online game player.

Spreadtrum Communications (NASDAQ:SPRD) fell -9.6% on Thursday following earnings announcement - another stock we think is oversold and will bounce back up. Read related story: Spreadtrum runs full cycle.

Most oversold China 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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