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Careful with overbought large cap China stocks

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telescope1 September 14, 2010 (Chinavestor) Thanks to a strong market day, China Telecom (NYSE:CHA) and CNOOC Ltd. (NYSE:CEO) became overbought. Home Inns & Hotels Management (NASDAQ:HMIN), China Unicom (NYSE:CHU) have been approaching theoretical highs as well. KongZhong Corp. (NASDAQ:KONG) climbed 6.71 percent on Monday, suggesting the advance was too fast, too much.

China Mobile (NYSE:CHL) moved away from the most oversold China stock position but the worst may not be over yet for Integrated Energy (NASDAQ:CBEH) and Shanda Interactive (NASDAQ:SNDA). While not on the chart (we cover stocks with at least one year market history) Duoyuan Printing, Inc. (NYSE:DYP) and Duoyuan Global Water Inc (NYSE:DGW) won't recover any time soon either.

Monday was a day for large cap China stocks. China Telecom (NYSE:CHA) jumped 3.8 percent - a highly unusual advance for such a big name. It was enought to push it over the envelope and now is in vulnerable position.

The same is true for CNOOC Ltd. (NYSE:CEO). China's offshore oil producer is reaching theoretical highs, an uncomfortable position for any stock, especially for a large cap NYSE play like CNOOC Ltd. (NYSE:CEO).

Downside risk exceeds upside potential for China Unicom (NYSE:CHU), China's second largest mobile carrier. While a strong market day can carry these large cap stock higher, a correction looks inevitable.

Home Inns & Hotels Management (NASDAQ:HMIN) is trading at 52 week highs thanks to solid fundamentals. While the stock will not tumble, a healthy correction may come sooner than later.

KongZhong Corp. (NASDAQ:KONG) advanced too much, too fast in the last five trading days - a 17 percent advance looks too much. A correction looks imminent...

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China Mobile (NYSE:CHL) jumped along the rest of the sector on Monday, moving away from the oversold position. China Integrated Energy (NASDAQ:CBEH) hasn't reached theoretical lows yet, suggesting more downside is possible. Shanda Interactive (NASDAQ:SNDA) continues to bleed, yet is just barely trading below its trading range. More downside is possible here, too...

Duoyuan Printing, Inc. (NYSE:DYP) and Duoyuan Global Water Inc (NYSE:DGW) fell on allegations or investigations into cooking books, a not too happy proposition. See the history of FUQI International (NASDAQ:FUQI) for the past two years to get a tast of what may lie ahead...

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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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