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How far can overbought China stocks go?

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think_1 Aug. 4, 2010 (Chinavestor) General Steel (NYSE:GSI) and Nam Tai Electronics (NYSE:NTE) jumped way out of their trading range while Baidu.com (NASDAQ:BIDU) and Chindex Int. (NASDAQ:CHDX) continue to hold on to previous gains. China Medical Technologies (NASDAQ:CMED) jumped from the lower end of its trading range to the upper, another significant move the overbought indicator picked up this morning.The oversold end of the China stock universe remains uneventful with no indication of a quick pop-up.

So let's concentrate on overbought China stocks. The9 Ltd. (NASDAQ:NCTY) looks still vulnerable with increasing downside risk while upside potential vanes.

General Steel (NYSE:GSI) advanced 12 percent for the week with increaing volume, a good sign - but the overoubnbght indicator suggests the rally might loose steam soon.

Nam Tai Electronics (NYSE:NTE) advanced 14 percent for the week - most if it registered on Monday following robust second quarter earnings. While the stock was able to hold on previous gains, upside looks limited according to the overbought chart.

Baidu.com (NASDAQ:BIDU) is trading above its trading range but is far from theoretical highs - an explosive stock like BIDU might surprise investors to the upside.

Chindex International (NASDAQ:CHDX) looks similar to Baidu.com (NASDAQ:BIDU) from a technical point of view but the stocks are different from fundamentals and trading characteristics. BIDU is a highly liquid blue chip while CHDX is a low cap, vol volume China play. This I interpret as increased vulnerability for CHDX. Investors have to exercise caution with CHDX. The company will release quarterly result on August 9 before the market opens at 8:00 A.M.

China Medical Technologies (NASDAQ:CMED) umped 13 percnet for the week and just might take a breather - given the size of the arrow on the overobught chart below.

OB_201084

There is no change from yesterday on the oversold end of the China stock list.

OS_201084

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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