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Momentum stocks to extend rally, says the overbought indicator

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advance5 April 26, 2010 (Chinavestor) Changyou.com (NASDAQ:CYOU) is considered overbought - but with strong outlook from Sohu.com (NASDAQ:SOHU) this morning, the stock may extend her rally. Here is a list of significant momentum stocks : Global Sources Ltd. (NASDAQ:GSOL), China Finance Online (NASDAQ:JRJC), Cogo Group (NASDAQ:COGO), Mindray Medical (NYSE:MR) and WuXi Pharmatech (NYSE:WX).

 

Notable stocks on the oversold screen include Canadian Solar (NASDAQ:CSIQ), Agria Corp. (NYSE:GRO), Simcere Pharama (NYSE:SCR)- besides China BAK Battery (NASDAQ:CBAK) and Qiao Xing Universal Telephone, Inc. (NASDAQ:XING).

 

Details: Sohu.com (NASDAQ:SOHU) reported 2010 first quarter earnings before the Bell on Monday. Revenues increased while net income fell -32%. But the upside is that the company issued 2010 Q2 revenue outlook above expectations, suggesting the stock price is going to outperform. If that's the case, expect Sohu spin-off Changyou.com (NASDAQ:CYOU) to do well just as much - except that a technical correction is looming for CYOU in the second part of the week.

Momentum stocks do well when the market rallies - suggests conventional wisdom. Expect shares of Global Sources (NASDAQ:GSDOL), China Finance Online (NASDAQ:JRJC), and Cogo Group (NASDAQ:COGO) do well on Monday. Mindray Medical (NYSE:MR) is not just a momentum but a value play as well. Mindray Medical (MR) - Initiated Buy.

WuXi Pharmatech (NYSE:WX) is not a trading stocks anymore, Charles River (NYSE:CRL) acquired the company for $21.25/ADR - $10 in cash and $11.25 in stock. Investors don't think it is a good idea: shares of Charles River Labs (NYSE:CRL) are down -10% in pre-market trading.

Most overbought China stocks

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Canadian Solar (NASDAQ:CSIQ) is not only oversold but is expected to do well energy prices increase. Chinese energy companies outperformed in Hong Kong earlier today - expect Chinese solar stocks to shine on Monday.

Agria Corp. (NYSE:GRO) and Simcere Pharama (NYSE:SCR) fell substantially in the past - but the worst may not be over yet. The stocks are trading just below their trading envelope suggesting more downside is possible.

The following two stocks have bottomed out: China BAK Battery (NASDAQ:CBAK) and Qiao Xing Universal Telephone, Inc. (NASDAQ:XING). While downside risk is subsiding, the bounce back up is not necessarily imminent! Exercise caution while trade with these 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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