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The number of overbought China stocks is on the rise

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warning2 March 31, 2010 (Chinavestor) Momentum is back for China stocks, as the number of overbought Chinese stocks is on the rise. WSP Holdings (NYSE:WH) is a new addition to the oversold list. There are two classic definitions for overbought: for one, the stocks has either approached theoretical highs and for two, a sharp, unusual advance makes investors think that the stock has to take a breather before resuming the rally.

China Telecom (NYSE:CHA) fits into the first category though not perfectly. I have seen stocks advancing from the technical condition where CHA is today.

Stocks that fit into the second category include ReneSola Ltd. (NYSE:SOL), JA Solar (NASDAQ:JASO) and Tongjitang Chinese Medicines Co. (NYSE:TCM). It is important to note that the sharp advance in TCM's price is due to one big uptick, a trade of 4,000 shares at the end of the day, and thus current overbought reading is misleading.

There is another distinctive group of stocks, a set of China ADRs that have strong momentum but their advance is not excessive. Stocks falling into this category include UTStarcom (NASDAQ:UTSI),  Tiens Biotech Group (USA), Inc. (AMEX:TBV), Yanzhou Coal (NYSE:YZC), China Yuchai International Limited (NYSE:CYD) and Canadian Solar (NASDAQ:CSIQ).

Again, just one big uptick at the end of the day qualified  Tiens Biotech Group (USA), Inc. (AMEX:TBV) into this group, most of the trades were substantially lower throughout the trading day.

Most overbought China stock list

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On the oversold end of the China stock universe, Spreadtrum Communications (NASDAQ:SPRD) remains oversold. Notable mover is WSP Holdings Limited (NYSE:WH), a stock that fell -3.73% yesterday following disastrous 2009 full year and fourth quarter financials. WSP plunges as 2009 Q4 net loss widens.

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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