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China stocks stretching too thin, July 28

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warning2 July 28, 2010 (Chinavestor) The rally looks unsustainable for The9 Ltd. (NASDAQ:NCTY) and Sohu.com (NASDAQ:SOHU), according to the overbought indicator. Additional stocks in the danger zone include Shanda Games (NASDAQ:GAME), China TechFaith Wireless (NASDAQ:CNTF) , Zhongpin (NASDAQ:HOGS), Baidu.com (NASDAQ:BIDU), and HSBC Plc. (NYSE:HBC) - just to name a few. Noah Education (NYSE:NED) and China Infrastructure Investment Corp (NASDAQ:CIIC) are not oversold despite significant losses.

Chinese online gamers caught fire ahead of earnings - as is evidenced by the strong performance of The9 Ltd. (NASDAQ:NCTY) and Shanda Games (NASDAQ:GAME). But downside risk looks exceeding upside potential for both stocks.

Sohu.com (NASDAQ:SOHU) advanced over 10 percent in the past five trading days and is now in the danger zone, according to the chart below. Sina Corp. (NASDAQ:SINA) is less vulnerable but investors better exercise caution with both online portals.

China TechFaith Wireless (NASDAQ:CNTF) is dangerously close to theoretyical highs, another hot potato...

Baidu.com (NASDAQ:BIDU) hasn't approached theoretical highs yet but stretched too much too fast, according to the overbought chart.

HSBC Plc. (NYSE:HBC), a large cap Hang Seng Index heavy weight is unusually strong - while it may creep higher on Wednesday but might slow down on profit taking.

OB_2010728

Two new stock draw attention on the oversold end of the China stock universe. Noah Education (NYSE:NED) is trading well below her trading range - but hasn't reached theoretical lows just yet. More downside is possible, according to the oversold chart.

China Infrastructure Investment Corp (NASDAQ:CIIC)is similar to NED except that the stock fell just below the trading envelope - suggesting short term outlook the soon to be penny stock isn't bright just yet.

OS_2010728

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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