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China stock extremes after Labor day

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bounce_back September 7, 2010 (Chinavestor) A good number of Chinese stocks are trading at extremes, according to the overbought and oversold monitors. Huaneng Power International (NYSE:HNP) is just the top of the iceberg but investors better pay attention to Acorn International (NYSE:ATV), Spreadtrum Communications (NASDAQ:SPRD) and eLong (NASDAQ:LONG) as well. Highly liquid Home Inns & Hotels Management (NASDAQ:HMIN) is less vulnerable but is in the danger zone just like China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA). Trina Solar (NYSE:TSL) is stretching too thin while investors better look out for City Telecom Hong Kong (NASDAQ:CTEL) as well.

Large cap NYSE listed China stocks rarely get overbought like Huaneng Power International (NYSE:HNP) is right now, suggesting a technical correction is imminent. And while Acorn International (NYSE:ATV) hasn't reached theoretical highs yet, it looks just as vulnerable as HNP, according to the overbought chart below.

There is another set of stocks where downside risk exceeds upside potential for the short term. This includes Spreadtrum Communications (NASDAQ:SPRD), a stock that plateaued on Friday, and China Unicom (NYSE:CHU).

Energy stocks including solars remain volatile, making Trina Solar (NYSE:TSL) vulnerable for the upcoming days. While the stock is very solid from a fundamental point of view, the run from $22 to $28 in less then three weeks should investors think twice about short term upside.

eLong Inc. (NASDAQ:LONG) is a long shot at this point, but is trading clearly above its trading range suggesting a technical pullback is a real possibility. Yet the stock hasn't reached theoretical highs yet, suggesting more upside is possible. Whichever direction eLong inc. (NASDAQ:LONG) is going to take, one thing is for sure: risk level is elevated for this NASDAQ small cap China stock.

Home Inns & Hotels Management (NASDAQ:HMIN) is another fundamentally solid company that is reaching its true potential. But tthe stock might reach a short term ceiling, according to the overbought chart below.

China Telecom (NYSE:CHA) advanced 7.6 percent just last week, a highly unusual jump for a large cap company like this. Technical indicators suggests the stock is going to take a break rather sooner than later.

City Telecom H.K. (NASDAQ:CTEL) is a developing story. This stock was the best performer in 2009 going from $2.6 to $12 in 52 weeks, but lost its mojo in early 2010. But we have been noticing some significant buying since late July, suggesting more upside is possible for this volatile and risky play.

OB_201097

The oversold end of the China stock universe looks rather eventful thanks to a strong trading week last week. Despite a sizable tumble last week, KongZhong (NASDAQ:KONG) has more downside left, according to the oversold chart below. There is not a single China ADR trading at extremes on the oversold end right now. Bargain hunters will have to wait...

OS_201097

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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