April 9, 2010 (Chinavestor) When oil is trading above $86 a barrel, solar stocks shine. But just how vulnerable Chinese solar plays have become is evidenced by the fact that they all were in the red at noon on Thursday along with the broad market. The sudden advance of the sector made some components overbought - as the following screen testifies. Notable stocks, other than solar, with unusual move from the overbought screen include China Mobile (NYSE:CHL), Tongjitang Chinese Medicines Co. (NYSE:TCM) , Qiao Xing Mobile Communication Co., Ltd. (NYSE:QXM) and Melco Crown Entertainment Ltd (NASDAQ:MPEL).
Back to the overbought screen: the large number of solar stocks on the overbought screen is a clear testimony just how much the sector is sensitive to the price of oil. But with a strong rally on their back, downside risk is certainly on the rise. LDK Solar (NYSE:LDK), Solarfun Power (NASDAQ:SOLF) and ReneSola Ltd. (NYSE:SOL) have been approaching theoretical highs and are the most vulnerable of all solar stock at the moment.
The overbought chart captured the unusual stock price appreciation of China Mobile (NYSE:CHL). The largest carrier in the world is benefiting from strong money inflows as China is upgrading its 3G network. Chinese carriers will spend RMB400 billion in such upgrades in 2010, according to an influential Chinese newspaper. That network is based on a low cost, home grown TD-SCDMA technology for China Mobile (NYSE:CHL), giving it a huge cost advantage over its peers.
Shares of Tongjitang Chinese Medicines Co. (NYSE:TCM) are up on a buy-out offer, and is not expected to fall apart. The stock is up on a fundamental news and thus technical analysis is irrelevant at this point.
The overbought monitor spotted the uptrend of Melco Crown Entertainment (NASDAQ:MPEL). Despite recent advances, shares of the company are not overbought.
Most overbought China stocks
There are no oversold Chinese stocks from a pure technical point of view. But the unusual drop in the price of Mindray Medical International (NYSE:MR) is spotted by the monitor. Chinese exporters are expected to be hurt should the Yuan appreciate, a likely scenario that might dent into sales of this Chinese medical equipment maker. But the drop in share price looks excessive as the stock is approaching theoretical lows.
Technical weakness of Tiens Biotech (NYSE:TBV) is earnings related and as such is not expected to bounce back up anytime soon.
Shares of Guangshen Rail (NYSE:GSH) are not oversold but the weakness is unusual. The company is operating in the Pearl river delta region, the largest export region of the country. Chinese shipping companies have been hurting on lower tariffs and softer export outlook as the Yuan appreciation is lingering around. Don't expect GSH to recover any time soon...
Most oversold China stocks
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.