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Be careful with overbought China stocks on Thursday!

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warning1 June 17, 2010 (Chinavestor) Downside risk exceed upside potential for China Unicom (NYSE:CHU), 3SBio (NASDAQ:SSRX), New Oriental & Tech. Education (NYSE:EDU), Ctrip.com Int. (NASDAQ:CTRP) and Home Inns & Hotels Management (NASDAQ:HMIN).

Huaneng Power (NYSE:HNP), 51job Inc. (NASDAQ:JOBS) and China Telecom (NYSE:CHA) looks to have sustainable momentum.

China TechFaith Wireless (NASDAQ:CNTF) is a volatile, small cap China play with more upside potential - based on the overbought chart below.
While not on the screen yet, shares of China Life Insurance (NYSE:LFC) may get overbought after reporting a 56% increase in income premiums for the month of May. China Life Insurance May Premiums Income Increase 56.1% YoY.

OB_2010617

The oversold end present stocks to watch like Shanda Interactive (NASDAQ:SNDA) and Hurray! Holdings (NASDAQ:HRAY). Based on past experience, industry leaders - like Shanda - don't get too oversold and if they do, they don't stay there too long. It looks like Shanda Interactive (NASDAQ:SNDA) is nearing the bottom, based on the oversold chart below.

OS_2010617

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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