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China stock extremes to pay attention to on August 31

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WallStreet August 31, 2010 (Chinavestor) Upside for Chinese stocks is not limited by technical indicators, at least not by the overbought one, on Tuesday. It's the overall market that gives headaches these days... Despite sizable gains, upside is not limited for China Medical Technologies (NASDAQ:CMED), Rene Solar Ltd. (NYSE:SOL) or Silvercorp Metals (NYSE:SVM). China Nepstar Chain Drugstore (NYSE:NPD) made a V-shaped recovery and is far from overbought. But investors have to exercise caution with Acorn International (NYSE:ATV) and eLong Inc. (NASDAQ:LONG) for their sudden advance...

Stock to pay attention to on the oversold screen include A-Power Energy Generation Systems (NASDAQ:APWR) and China Life Insurance (NYSE:LFC), and KongZhon Corp. (NASDAQ:KONG) to a certain degree.

The good news is that despite latest surge, shares of China Medical Technologies (NASDAQ:CMED) are looking good on the overbought screen on Tuesday. Chines solar stocks have been on the roll following sound 2010 second quarter results, this time lifting shares of Rene Solar Ltd. (NYSE:SOL) above the crowd. Trina Solar (NYSE:TSL) was taking the lead with more upside on the table... Silvercorp Metals (NYSE:SVM) is similar to these stocks from an overbought point of view: looks balanced despite recent advance. China Nepstar Chain Drugstore (NYSE:NPD) shows momentum on the overbought screen but it's just part of the roller coaster ride the stock "enjoyed" over the past two and a half weeks.

Thought far from theoretical highs, the sudden increase in stock price of Acorn International (NYSE:ATV) and eLong Inc. (NASDAQ:LONG) raise the red flag. While more upside is possible, a technical correction is on the table as well.

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A-Power Energy Generation Systems (NASDAQ:APWR) fell apart in the second part of the month, tumbling 22.7 percent for the month. It will take time to recover from current slump as strong money outflows suggest. But the story is different for China Life Insurance (NYSE:LFC), a large cap Chinese play. NYSE listed Chinese ADRs don't get too often oversold to the extremes, as is the case with China Life Insurance (NYSE:LFC) right now. A bounce back is a possibility although investment returns from Shanghai, a sour spot on the financial statement of the company, remains a worry.

KongZhon Corp. (NASDAQ:KONG) fell hard and might bounce back up but is not oversold, technically speaking, yet. More downside is just as possible, especially when the market is soft.

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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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