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More downside for oversold stocks on Monday

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decline May 24, 2010 (Chinavestor) While there are no overbought Chinese stocks to speak of Monday morning, the oversold end of the China stock universe is full of action. Small cap China stocks dominate the oversold Chinese ADR screen thanks to a strong rebound of large caps on Friday. Yet there is more downside left for the oversold stocks as well, according to the oversold monitor below.

Acorn International (NYSE:ATV), China Natural Resources Inc. (NASDAQ:CHNR), Shengda Tech Inc. (NASDAQ:SDTH),  or City Telecom (NASDAQ:CTEL) remain in the danger zone for Monday. China Eastern Airlines (NYSE:CEA) had a strong showing on Hong Kong earlier the day, expect its ADRs to bump up on Monday.

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The overbought monitor picked up the unusual uptick in China TechFaith Wireless (NASDAQ:CNTF) last week. The company reported  superb earnings last week suggesting more upside is possible. Spreadtrum Comm. (NASDAQ:SPRD) reported strong earnings but has been on the top of the overbought chart for too long.

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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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