July 16, 2010 (Chinavestor) Couple of Chinese stocks are nearing the danger zone: China Finance Online (NASDAQ:JRJC), Sina Corp. (NASDAQ:SINA), China TechFaith Wireless (NASDAQ:CNTF), NetEase.com Inc. (NASDAQ:NTES) and China TransInfo (NASDAQ:CTFO). Downside risk surpasses upside potential for these stocks, according to the overbought chart below.
Despite recent surge, Shanda Games (NASDAQ:GAME), Nam Tai Electronics (NYSE:NTE) are not overbought.
But Google's (NASDAQ:GOOG) disappointing earnings will certainly take a toll on Baidu.com (NASDAQ:BIDU) and the rest of the Internet stocks such as Sina Corp. (NASDAQ:SINA), NetEase.com (NASDAQ:NTES) and Sohu.com (NASDAQ:SOHU). Shanda Games (NASDAQ:GAME) is expected to feel a pinch as well...
China Transinfo Technologies (NASDAQ:CTFO) took a breather on Wednesday following the big run a day before, and resumed heading north on Thursday. Clearing 38 percent in just five days makes the stock vulnerable - just as the overbought chart testifies.
China Finance Online (NASDAQ:JRJC) is not a liquid stock with 48,000 shares trading on an average day - this makes the indicator below less accurate. Yet upside looks limited for the stock at this point.
China TechFaith Wireless (NASDAQ:CNTF) is similar to JRJC from a technical point of view: both stock surged but low volume renders the overbought monitor less accurate.
Nam Tai Electronincs (NYSE:NTE) is just trading above its trading range, suggesting more upside is possible.
City Telecom (NASDAQ:CTEL) has been on a decline for over three months, shedding over 5 percent this week alone. A temporary bottom is nearing, according to the oversold monitor. The rest of the China stock universe is far from the oversold position.
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.