August 9, 2010 (Chinavestor) Couple of Chinese stocks are in the danger zone on Tuesday, according to the overbought monitor. Sohu.com (NASDAQ:SOHU) and China Digital TV Holdings (NYSE:STV) are the most vulnerable to a pullback, but upside looks limited for Guangshen Rail (NYSE:GSH) and Huaneng Power Int. (NYSE:HNP) as well. Sina Corp. (NASDAQ:SINA) and Home Inns & Hotels Management (NASDAQ:HMIN) may prove more resilient than Sohu, but investors will have to exercise caution with these volatile NASDAQ plays. Stocks at extremes on the oversold monitor include American Dairy (NYSE:ADY) and Synutra International (NASADAQ:SYUT).
Sohu.com (NASDAQ:SOHU) is now in a classic overbought position, a pullback looks imminent. Sina Corp. (NASDAQ:SINA) is another internet portal that advanced following robust 2010 Q2 earnings, but their downside risk is now exceeding upside potential.
Home Inns & Hotels Management (NASDAQ:HMIN) is going to report after the close on Tuesday - investors are exuberant ahead of earnings. More upside is possible should the stock beat expectations.
China Digital TV Holdings (NYSE:STV) is in vulnerable position, investors have to exercise caution!
Large cap, NYSE listed Chinese ADRs don't usually get overbought like Guangshen Rail (NYSE:GSH) or Huaneng Power International (NYSE:HNP). Current technical position seems too much of a stretch for both companies; downside risk exceeds upside potential for both companies.
American Dairy (NYSE:ADY) fell hard on disappointing earnings last night while Synutra International (NASDAQ:SYUT) fell over 20 percent following rumors that its products are unsafe. Chinese parents are still rattled by last year's melamine scandal, when scores of babies died of tainted baby formula. Despite significant fall in stock prices, both stock have more downside left, according to the oversold monitor below.
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.