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China stock watch list for August 26, 2010

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watch_5 August 26, 2010 (Chinavestor) Looking at the overbought and oversold ends of the China stock universe, the following ADRs are trading at extremes. Perfect World Co. Ltd. (NASDAQ:PWRD) continues to lead the overbought list followed by China Architectural Engineering, Inc. (NASDAQ:CAEI) and GigaMedia Ltd. (NASDAQ:GIGM). Zhongpin Inc. (NASDAQ:HOGS) is looking good based on volume and technical reading combined. China stock extremes on the oversold end include WuXi Pharmatech (NYSE:WX), Tiens Biotech (NYSE:TBV), Global Sources (NASDAQ:GSOL) and newcomer China Automotive Systems (NASDAQ:CAAS).

Perfect World Co. Ltd. (NASDAQ:PWRD) took back the top spot from China Architectural Engineering, Inc. (NASDAQ:CAEI) on Wednesday. CAEI advanced 49 percent the day before so Wednesday's 11 percent correction was well taken. Looking at the overbought screen below, China Architectural Engineering, Inc. (NASDAQ:CAEI) is looking good from a technical point of view as of now.

GigaMedia Ltd. (NASDAQ:GIGM) is similar to China Architec. (NASDAQ:CAEI) from a technical point of view; both stocks have promising upside potential.

Zhongpin Inc. (NASDAQ:HOGS) is a volatile stock, might continue the uptrend on strong money flows. U.S. investors have liked HOGS - or to be precise the food industry has been trendy lately.

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Stock extremes on the oversold end include WuXi Pharmatech (NYSE:WX) and Tiens Biotech (NYSE:TBV). But Global Sources (NASDAQ:GSOL) is almost as close to theoretical lows as TBV.  China Automotive Systems (NASDAQ:CAAS) is getting oversold following a three day losing streak. Shares of the company fell 17 percent this week as investors have started to surrender positions en masse. Be careful, more downside is possible before a turnaround.

Actions Semiconductyor (NASDAQ:ACTS) looks vulnerable for additional downside - but low volume renders the oversold indicator rather inaccurate this time.

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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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