June 16, 2010 (Chinavestor) Yesterday's rally carried momentum stocks higher - some to a dangerously high level - according to the overbought monitor below. China Unicom (NYSE:CHU) remains the most overbought China ADR at the moment with Home Inns & Hotels Management (NASDAQ:HMIN) following it closely. CHU has been leveling off in the last two days but downside risk now exceeds upside potential. New Oriental Education & Tech. Group Inc. (NYSE:EDU) may touch $100 briefly but the overbought monitor suggests the run-up is too fast and might end in a sudden correction. Ctrip.com Int. (NASDAQ:CTRP) is similar to China Telecom (NYSE:CHA) and Baidu.com (NASDAQ:BIDU) from a technical point of view: these stocks advanced from the low end of their trading envelope to the top of it within a week. These stocks have more upside - albeit at a slower pace.
Sina Corp. (NASDAQ:SINA), Sinopec Shanghai Petrochemical (NYSE:SHI) and China Petroleum & Chemical Corp. (NYSE:SNP) has more upside left, according to the overbought monitor below.
Huaneng Power Int. (NYSE:HNP), the largest independent power producer in China, went from the most oversold stock to one of the best one in just two weeks. Hope you followed our advice: "Huaneng Power (NYSE:HNP) is less oversold than last week but is definitely a stock value investors should pay attention to. The company reported a net income growth of over 40% last quarter, but warned of overcapacity related margin pressures ahead." China stocks to watch on June 7, Monday.
The oversold end of the China stock universe presents some interesting action. Shares of Hurray! Holdings (NASDAQ:HRAY) became oversold thanks to a 13% dive on Tuesday. Heavy volume accompanying the slide suggests the bounce back may have to wait.
City Telecom (NASDAQ:CTEL) and JA Solar (NASDAQ:JASO) have bounced off the oversold position though CTEL has more upside left, according to the chart below.
I hope you followed these technical indicators lately - or even better, became an Advanced member, because then you took advantage of CTEL's and JA Solar's resurgence. Both stocks were placed on the buy list last Friday with a SELL e-mail alert on Tuesday afternoon, locking in handsome profits for Chinavestor subscribers.
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.