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Earnings, momentum to drive China stocks on Thursday

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advance2 March 25, 2010 (Chinavestor) City Telecom (NASDAQ:CTEL) continues to tower over the rest of the overbought China stock list. With a seven day winning streak, time has come to take a breather. Shares of formerly overbought China Telecom (NYSE:CHA) paused on Wednesday but are looking good at the moment. Investors got a chance to get a comprehensive assessment of the Chinese telecom sector after China Unciom (NYSE:CHU) announced 2009 financials on Wednesday while China Mobile (NYSE:CHL) did it a week prior. China telecom industry in 2009.

Baidu.com (NASDAQ:BIDU) advanced 5 days in row supported by strong money flows and is not overbought yet - suggesting more upside is possible. BIDU is similar to Melco Crown Entertainment (NASDAQ:MPEL), Shengda Tech (NASDAQ:SDTH) and UTStarcom (NASDAQ:UTSI) from a technical point of view.

Giant Interactive (NYSE:GA) made it to the overbought screen as well, but weakness of Changyou.com (NASDAQ:CYOU) on the oversold list is striking. Shares of NetEase.com Inc. (NASDAQ:NTES) have fallen in the last five days with heavy volume - though the stock isn't oversold yet. More downside is possible... More oversold stocks to watch out today: Fuqi International (NASDAQ:FUQI), Tongjitang Chinese Medicines Co. (NYSE:TCM) and Longtop Financial Technologies Limited (NYSE:LFT).

Most overbought China stocks

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Shares of Fuqi International (NASDAQ:FUQI) advanced +12% by mid-day on Wednesday just to reverse the uptrend, ending the day +4.5% higher. Shares of the company fell -44% after allegations of financial wrongdoings surfaced, sending shares of the company way oversold. Besides technical indicators we highlighted that the depth of current restatement of earnings doesn't justify such a drastic fall. Don't panic FUQI investor!

A rotation is taking place within the Chinese online game sector - Shanda Interactive (NASDAQ:SNDA) is catching up with NetEase.com (NASDAQ:NTES) and Changyou.com (NASDAQ:CYOU). These latter two reported 2009 Q4 revenue and earnings growth while profitability fell for the rest of the sector. China online game landscape as earnings roll in.

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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