September 9, 2010 (Chinavestor) We have couple of stock extremes to watch closely on Thursday. For one, take a look at Qiao Xing Mobile Communication Co., Ltd. (NYSE:QXM). The stock rose less than a dollar on Wednesday yet it was a 37.6 percent jump! The stock is stretching too fast, too much... just as the overbought chart displays.China BAK Battery (NASDAQ:CBAK) continued to tower the list of the most overbought China stocks along with WSP Holdings (NYSE:WH). Both stocks plateaued yesterday and have limited upside, based on the chart below. Ku6 Media Co (NASDAQ:KUTV), formerly known as Hurray! Holdings, rose 14 percent in the past five trading days and is getting overbought. Home Inns & Hotels Management (NASDAQ:HMIN) is trading at 52 week highs - a solid stock with more upside potential. Chinese education stocks look good at this point - take a look at New Oriental Education & Technology (NYSE:EDU) for one. China Medical Technology (NASDAQ:CMED) looks ready to resume the rally after taking a break on Wednesday.
Paying closer attention to the overbought chart, there are two set of overbought stocks. One is when a stock jumps too much on one day and is ready for a break. This is the case with Qiao Xing Mobile Communication Co., Ltd. (NYSE:QXM) today. Another set of overbought stocks are those that have approached theoretical highs and are set for a pull back. China BAK Battery (NASDAQ:CBAK) and WSP Holdings (NYSE:WH) are exactly there. Both stocks hit the breaks on Wednesday but more is needed before they can resume the rally, suggests the overbought chart below.
Ku6 Media Co. (NASDAQ:KUTV) is dangerously close to theoretical highs just like Home Inns & Hotels Management (NASDAQ:HMIN) is. But while HMIN is a fundamentally solid company and might continue to climb, albeit at a slower pace, KUTV is a small cap China play that might just tumble... Investors have to be careful with both stocks realizing that KUTV is more volatile and vulnerable.
We also have stocks with additional upside potential; New Oriental Education & Technology (NYSE:EDU) is looking good on the chart just like China Medical Technology (NASDAQ:CMED. Both stocks have stepped above their trading range but are not overbought yet, implying more upside is possible.
There are no oversold China stocks at this point- at least not from a classical point of view.
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.