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China stocks to watch on Aug 3

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telescope1 Aug. 3, 2010 (Chinavestor) Overbought stocks are in danger when market sentiment dries up. With that in mind, Guangshen Rail (NYSE:GSH), The9 Ltd. (NASDAQ:NCTY), Nam Tai Electronics (NYSE:NTE), HSBC Plc. (NYSE:HBC) and Chindex International (NASDAQ:CHDX) are in the danger zone before the open in Tuesday. NASDAQ listed blue chips Sohu.com (NASDAQ:SOHU) and Baidu.com (NASDAQ:BIDU) might up to a short-term correction as well, according to the overbought monitor below.

Investors consider a stock being ov ebought if it approaches theoretical highs - as is the case for Guangshen Rail (NYSE:GSH) and The9 Ltd. (NASDAQ:NCTY). Robust earnings propelled Nam Tai Electronics (NYSE:NTE) 8.05 percent higher on Monday, a significant uptick, but when fundamentals drive stock prices, collapse is not an imminent danger.

HSBC Plc. (NYSE:HBC), a Hang Seng Index heavy weight, advanced 5.2 percent on Monday, a highly unusual jump for such a large cap stock. It might take a breather on Tuesday, according to the overbought monitor.

Sohu.com (NASDAQ:SOHU) reported strong earnings last week and has been on fire ever since. But it is reaching a resistance level and might take a breather before resuming the rally.

The situation is similar to Baidu.com (NASDAQ:BIDSU), China's most prominent search engine company. Shares of BIDU jumped following a record second quarter report but the rally will have to slow, according to the overbought chart below.

OB_201083

Despite significant losses, the bleeding for Vimicro Int. (NASDAQ:VIMC) and China Infrastructure Development (NASDAQ:CIIC) might not be over yet, according to the oversold chart below. Both stocks haven't reached theoretical lows yet, suggesting further weakness is possible.

OS_201083

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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