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China stock watch list for Friday

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strong_2 March 26, 2010 (Chinavestor) The introduction of index futures, margin trading ans short selling in Shanghai send Chinese shares over the moon on Friday. China shares jump in Asia on index futures. Investor optimism is expected to drive momentum China stocks higher. There are tow set of stocks to watch out: stocks that haven't reached their full potential yet and those that have taken a breather just to resume to rally. This latter group includes Baidu.com (NASDAQ:BIDU) and Melco Crown Entertainment (NASDAQ:MPEL). Momentum stocks trading just above their trading range include Giant Interactive (NYSE:GA) from the online game arena, China Telecom (NYSE:CHA), internet darling Ctrip.com (NASDAQ:CTRP), CDC Corporation (NASDAQ:CHINA) and VanceInfo Technologies (NYSE:VIT). Expect shares of Shanda Interactive (NASDAQ:SNDA) do well on Friday.

Oversold stocks are expected to bounce back - just as is the case with Fuqi International (NASDAQ:FUQI) and Tongjitang Chinese Medicines Co. (NYSE:TCM). The oversold monitor highlighted these stocks earlier the week. Shares of Changyou.com (NASDAQ:CYOU) and China Mobile (NYSE:CHL) are hurt on sector rotation while Spreadtrum Communications (NASDAQ:SPRD) is simply just oversold.


There isn't any technically overbought China play this morning as the following chart testifies. Shares of Baidu.com (NASDAQ:BIDU) took a breather on Thursday breaking a four day winning streak. Melco Crown Entertainment (NASDAQ:MPEL) is similar to BIDU from a technical point of view - expect it to outperform on Friday.

A rotation is taking place within the online game sector. NetEase.com (NASDAQ:NTES) and Changyou.com (NASDAQ:CYOU) reported improved 2009 Q4 revenue and net income from previous quarter while Shana Interactive (NASDAQ:SNDA), Shanda Games (NASDAQ:GAME) and Giant Interactive (NYSE:GA) reported 2009 Q4 revenue growth but net income fell from Q3. China online game landscape as earnings roll in.

Investors took note and propelled shares of NetEase.com (NASDAQ:NTES) well above that of Shanda Interactive (NASDAQ:SNDA). But such deviances don't last too long and Shanda Interactive (NASDAQ:SNDA) has been closing on the gap fast.

Shares of China Telecom (NYSE:CHA) advanced in contrast to bigger mobile rivals like China Mobile (NYSE:CHL) and China Unicom (NYSE:CHU). Investors noticed that smaller China Telecom (NYSE:CHA) doubled her mobile subscriber base adding three times as many user accounts than China Unicom (NYSE:CHU) in 2009. China Mobile (NYSE:CHL) added more new users than CHU and CHA combined but investors still doubt if the TD-SDMA technology is sufficient to promote 3G phones in China. China telecom industry in 2009.

Quality internet stock, Ctrip.com (NASDAQ:CTRP), is looking good from a technical point of view on Friday. Shares of the company plunged right after fourth quarter earnings but have recovered all those losses and are trading at 52 week highs. Here is our assessment of the company written after earnings related dive: "Considering that business outlook, e.g. revenue guidance, is always subject to change, my reading on current financial report is much better then those investors who sold it last night. Time will tell who was right" Ctrip '09 Q4 disappoints. How bad is it?

Most overbought China stocks

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Stocks on the oversold end have been trading in a narrow range with an exception of Spreadtrum Comm. (NASDAQ:SPRD), Changyou.com (NASDAQ:CYOU) and China Mobile (NYSE:CHL). Spreadtrum Communications (NASDAQ:SPRD) remain oversold, something that risky investors should pay attention to. Value stocks like China Mobile (NYSE:CHL) and Changyou.com (NASDAQ:CYOU) don't get oversold too fast and don't stay there for too long either.

Smaller cap FUQI International (NASDAQ:FUQI), HQ Sustainable Maritime (AMEX:HQS) and Tongjitang Chinese Medicines Co. (NYSE:TCM) are classic examples of how stocks bounce back up once they get truly oversold. See TCM two days ago - China stock watch list for March 24 and Fuqi and HQS on Monday - CTEL and other overbought - oversold China stocks .

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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