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Careful with overbought China stocks on July 13

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advance6 July 13, 2010 (Chinavestor) Upside is getting limited for China Finance Online (NASDAQ:JRJC) but most Chinese ADRs are far from overbought. Chinese online game companies have caught fire before earnings, as testified by the strong showing of NetEase.com Inc. (NASDAQ:NTES) on the screen below. Shanda Interactive (NASDAQ:SNDA) and its online game unit, Shanda Games (NASDAQ:GAME) were the best performing Chinese ADRs on Monday. Chinese solar stocks have been on the roll, as is evidenced by a large number of them showing up on the overbought screen/. Rene Sola Ltd. (NYSE:SOL), Solarfun Power Holdings (NASDAQ:SOLF), Yingli Green Energy (N YSE:YGE) and Suntech Power (NYSE:STP) are all on the overbought screen below.

Solar stocks are driven by strong fundamentals, solid demand and firm margins. The weak euro is hurting their profitability since their largest export market is Germany and Spain, but they look healthy overall. More upside is possible for Rene Sola (NYSE:SOL), Yingli Green Energy (NYSE:YGE) and Suntech Power (NYSE:STP). Solarfun Power (NASDAQ:SOLF) has been more volatile and stretching too fast, according to the overbought monitor below.

Despite latest surge, shares of Shanda Interactive (NASDAQ:SNDA) are far from overbought. This suggests more upside is possible for the stock. The same is true for its online game unit, Shanda Games (NASDAQ:GAME).  NetEase.com inc. (NASDAQ:NTES), the most profitable Chinese online game company, has more upside left as well, according to the chart below.

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The oversold end of the China stock universe remains tepid.

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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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