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Growth to slow for overbought China plays

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think_1 August 20, 2010 (Chinavestor) Investors will have to ask if the current speed of Rino International (NASDAQ:RINO) is sustainable. The same is true for China TechFaith Wireless (NASDAQ:CNTF). Both stocks have advanced ten to fifteen percent for the week but are stretching too thin, according to the overbought monitor.

Newcomers on the screen include China Petroleum & Chemical Corp. (NYSE:SNP) and China Green Agriculture (NYSE:CGA). Both stocks are far from overbought yet project strong momentum.

Rino International (NASDAQ:RINO) is a highly liquid stock with huge upside potential, considering that it was trading above $30 earlier this year. But the overbought monitor suggests the current run up may be too fast and a technical correction is likely.

China TecdhFaith Wireless (NASDAQ:CNTF) is very similar to Rino from a technical point of view. It actually plateaued on Thursday, giving investors a breath of fresh air to assess wheres to go from here. Downside risk exceeds upside potential for CNTF, according to the overbought chart below.

Large cap China Petroleum & Chemical Corp. (NYSE:SNP), Asia's largest refiner, rose in Asia on Thursday but lost steam on Friday. Large cap stocks like Sinopec can't fight the market - suggesting the rally is over for the short term, at least.

China Green Agriculutre (NYSE:CGA) stepped out its trading envelope and is driven by fundamentals; suggersting more upside may ley ahead.

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The oversold end of the China stock universe is not indicative ahead at this point on Friday. But assuming the market will plunge, expect some interesting stories to develop. Come back and check with us over the weekend or better yet, sign up for Advanced Membership to pick our brain. Stock recommendations are accompanied with email alerts. For more, visit Premium Content.

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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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