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Risk increases as China stocks advance

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warning2 March 9, 2010 (Chinavestor) There has been a sudden increase in the number of momentum China stocks from last week. Some is earnings announcement related, such as E-House Holdings (NYSE:EJ) that ran up +10.1% before reporting thus morning. But most of the advance is driven by market momentum, a factor that can turn just as fast as it came.

 

China Telecom (NYSE:CHA) and Melco Crown Entertainment (NASDAQ:MPEL) lead the overbought monitor along with E-House (NYSE:EJ) raising their risk level significantly. Stocks of interest for today include China Precision Steel (NASDAQ:CPSL) GigaMedia Ltd. (NASDAQ:GIGM), HQ Sustainable Maritime (AMEX:HQS), Fushi Copperweld (NASDAQ:FSIN), China Fire & Security (NASDAQ:CFSG), and Vimicro International Corp. (NASDAQ:VIMC).

 

The case for E-House Holdings (NYSE:EJ) is very simple - earnings are out before the open and that will determine stock price movement from there.

Hong Kong listed H-shares of China Telecom (HKG:0728) fell -0.80% today suggesting profit taking has started in Asia. We have said for two day that large cap NYSE listed stocks like China Telecom (NYSE:CHA) don't stay overbought for a long time and as such take profits. Hope you listened to this advice and maximized your profits.

Melco Crown Entertainment (NASDAQ:MPEL) has approached theoretical highs and is considered overbought. Expect a technical correction to pull down the stock soon.

Share price of China Precision Steel (NASDAQ:CPSL) surged +16.0% on Monday with significant underlying volume. The similar trading pattern, e.g. huge jump out of nowhere, happened in February 16 where the stock had one more positive day before leveling off. If history is any guide in predicting future price, today is the perfect day to short CPSL to maximize profits.

Technical strength of GigaMedia Ltd. (NASDAQ:GIGM) is very different from China Precision Steel (NASDAQ:CFSG). The company has been on the rise since early February. Increasing volume is a good sign, suggesting more upside is likely.

Shares of Fushi Copperweld (NASDAQ:FSIN) advanced over +20% in the last five trading days but the stock has not approached theoretical highs yet. It looks the stock has more in store for the risky buyer.

Volatility is up for China Fire & Security Group (NASDAQ:CFSG). The stock took a breather on Monday raising the question which direction to take from here. CFSG is not overbought leaving more room to the upside.

Most overbought China stocks

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Vimicro International Corp. (NASDAQ:VIMC) is on top of the oversold China stock list, suggesting the bottom is near for the ADR. VisionChina Media (NASDAQ:VISN) has turned around on Monday but don't expect much of a rally just yet. It's more likely that the recovery for VISN is going to be slow and gradual.

Most oversold China stock list

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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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