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China stocks in danger, July 30

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watch_5 July 30, 2010 (Chinavestor) Stocks ripe for a pullback include The9 Ltd. (NASDAQ:NCTY), Sohu.com (NASDAQ:SOHU) and Shanda Games (NASDAQ:GAME), according to the overbought chart below. There are more stocks in the danger zone albeit to a lesser degree. These include 3SBio (NASDAQ:SSRX), Sina Corp. (NASDAQ:SINA) and Changyou.com (NASDAQ:CYOU), just to name a few.

China Infrastructure Development (NASDAQ:CIIC) slipped to penny stocks but might make a comeback. Despite recent losses, Giant Interactive (NYSE:GA) and Melco Crown Entertainment (NASDAQ:MPEL) are not oversold yet.

The9 Ltd. (NASDAQ:NCTY) has been sitting on the top of the overbought China stock list for the last three days, suggesting the rally is going to take a break.

Sohu.com (NASDAQ:SOHU) is similar to the9 Ltd. (NASDAQ:NCTY) from a technical point of view; strong earnings helped it jump on Monday but peaked on Wednesday and has been leveling off since then.Changyou.com (NASDAQ:CYOU), formerly Sohu's online game unit but now an independent company, jumped on Monday but lost its steam and has been leveling off as well.  Sina Corp. (NASDAQ:SINA), a main competitor for Sohu, has been trading in the $41-$43 range for the week but is susceptible to a pullback when market sentiment sours.

Downside risk exceeds upside momentum for Shanda Games (NASDAQ:GAME) and to 3SBio (NASDAQ:SSRX), according to the overbought chart below.

OB_2010730

China Infrastructure Development (NASDAQ:CIIC) fell too hard, too much, according to the oversold monitor below. While the turnaround is unlikely on Friday, the stock might pop significantly next week.

Giant Interactive (NYSE:GA) has been suffering from stock rotation; investors favored Shanda Games (NASDAQ:GAME), The9 Ltd. (NASDAQ:NCTY), NetEase.com (NASDAQ:NTES) and Changyou.com (NASDAQ:CYOU) but dumped GA. Despite recent losses, more downside is possible.

Melco Crown Entertainment (NASDAQ:MPEL) is a highly volatile stock but has more downside risk left, according to the chart below.

OS_2010730

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.

aexpl-obos



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