April 28, 2010 (Chinavestor) Chinese stocks have suffered a severe blow in the past five trading sessions as Greece's ills spread to Portugal and the Chinese government has stepping up efforts to coll-off the property market. The DJIA fell 213 points on Tuesday, the largest single day loss since February 4, 2010. No wonder, Chinese ADRs tumbled. But the good news is that every decline is followed by a surge, and usually those advance the most that have fallen the sharpest.
To assess the severity of the losses, we created tow oversold screens this morning. The first one looks at oversold stocks from a traditional point of view: stocks that have approached theoretical lows. Then we're going to see a list of China stocks with the largest unusual decline on a separate screen.
Most oversold China stocks
But the real action is captured on the second oversold screen. This one captures stocks with the most unusual decline. Huaneng Power (NYSE:HNP) is still on the top of the list however it is worth paying attention to stocks like Guangshen Rail (NYSE:GSH), Gushan Environmental Energy (NYSE:GU), Xinyuan Real Estate Co., Ltd. (NYSE:XIN), Qiao Xing Universal Telephone (NASDAQ:XING), Agria Corp. (NYSE:GRO), or E-House Holdings (NYSE:EJ).
China BAK Battery (NASDAQ:CBAK) is down on disappointing financials and outlook - and is not expected to turn around fast. China Finance Online (NASDAQ:JRJC) was overbought and current correction just highlights the risks involved with small cap, volatile China stocks.
China stocks w/ significant loss of momentum
There isn't any overbought China plays at the moment- at least not from a classical point of view. But stocks with significant momentum include 51job Inc (NASDAQ:JOBS), Global Sources (NASDAQ:GSOL) and WuXi Pharmatech (NYSE:WX). But 51job Inc. (NASDAQ:JOBS) and Global Sources (NASDAQ:GSOL) are in danger today. JOBS fell in the last hour of trading on Tuesday, suggesting it has reached a plateau already. GSOL advanced six days in a row and will have to toke a break sooner than later. WX is a target company of Charles River Labs (NYSE:SRL) and is expected to trade sideways.
Most overbought China stock list
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.