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Earnings drive China stocks to extremes

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risk_1 May 12, 2010 (Chinavestor) Earnings can make it or break it, according to the overbought and oversold monitor. Investors punished Xinhua Sports & Entertainment Ltd (NASDAQ:XSEL), Mindray Medical International(NYSE:MR), VisionChina Media (NASDAQ:VISN), and American Oriental Bioengineering (NYSE:AOB) but sent shares of China Digital TV Holdings (NYSE:STV), Ctrip.com (NASDAQ:CTRP),  and Home Inns & Hotel Management (NYASDAQ:HMIN) higher.

Another set of stock on the oversold screen include Tongxin International (NASDAQ:TXIC), GigaMedia Limited (NASDAQ:GIGM), and Wonder Auto Technology (NASDAQ:WATG). These stocks fell hard last week and have been recovering.

China Integrated Energy (NASDAQ:CBEH), WuXi Pharmatech (NYSE:WX), CDC Corp. (NASDAQ:CHINA), ChinaCast Education (NASDAQ:CAST), reported with more ADRs on the way. China stocks earnings calendar May 10-14, 2010.


Xinhua Sports & Entertainment Ltd (NASDAQ:XSEL) fell over 30% yesterday as the company dived deeper into the red and revenues continued to deteriorate. A serious cash crunch is coming up, as our analysis revealed: XSEL dives -30% as earnings disappoint.

American Oriental Bioengineering (NYSE:AOB) isn't out of the woods yet. Revenues and net income fell for the fourth time in a row - and recall that the company had to restate earnings not too long ago. Altogether a trouble is brewing with AOB and investors don't want to be part of it. Despite significant losses, more downside is possible. AOB 2010 Q1 revenue, earnings down from last quarter.

ChinaVision Media (NASDAQ:VISN) fell -11% on Tuesday following earnings release. The stock is oversold, similar to XSEL, expect that there is no liquidity issue with VISN at this point.

Mindray Medical (NYSE:MR) became oversold after a -8.06% dive on Tuesday. While investors punished the stock severely, our analysis suggest this is an overreaction and MR should do better. Mindray 2010 Q1 disappoints, guides higher.

Wonder Auto (NASDAQ:WATG) was the most oversold China play on Monday morning, current weakness is actually a big improvement since then. Tongxin International (NASDAQ:TXIC) fell under $6 for the first time in 2010 but is not considered oversold yet. It need a strong quarter to restore investors' confidence.

GigaMedia Limited (NASDAQ:GIGM) lost a quarter of its value in a month and things don't look good for the short term either. The stock price hasn't approached theoretical lows yet, suggesting more weakness is possible.

CDC Corp. (NASDAQ:CHINA) reported disappoinintg quarterly earnings and fell -8%. Don't expect a fast bounce back when fundamentals lag. CDC Corp. drops 8.5% as slips to 2010 Q1 loss.

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There is not a single overbought China stocks that the moment. Silvercorp Metals (NYSE:SVM) is up on earnings, but there is lot of upside left for stocks with strong fundamentals. Ctrip.com (NASDAQ:CTRP) reported strong revenue and earnings growth: Ctrip 2010 Q1 doesn't disappoint.

Home Inns & Hotel Management (NYASDAQ:HMIN) guided higher and reassured investors that it is a save investment at this point. Home Inns & Hotel delivers sound 2010 Q1.

None of these stocks are overbought at this point, suggesting a strong rally lays ahead.

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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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