September 15, 2010 (Chinavestor) There is not a single overbought China stock on the radar screen this mornings thanks to a slight pullback on Tuesday. Large cap China Petroleum & Chemical Corp. (NYSE:SNP) took the lead on the overbought monitor followed by Home Inns & Hotels Management (NASDAQ:HMIN), China Telecom (NYSE:CHA) and China's offshore oil specialist, CNOOC Ltd. (NYSE:CEO). Unusual advance by Focus Media Holdings (NASDAQ:FMCN) and Huaneng Power (NYSE:HNP) is worth paying attention to as well.
Experience has taught us that overbought stocks are most vulnerable when the market heads south. This is why outlook is dim for China Petroleum & Chemical Corp. (NYSE:SNP) - despite the stock is not overbought technically speaking.Same is true for CNOOC Ltd. (NYSE:CEO). The stock is not really overbought but will not be able to fight the market.
Home Inns & Hotels Management (NASDAQ:HMIN) is a stock in a tight spot right now; trading at 52 week higfhs with a long stretched rally behind. The time has come to take a break, suggests the overbought monitor below.
China Telecom (NYSE:CHA) looks similar to China Unicom (NYSE:CHU) on the overbought chart yet there is a significant difference between the two: while H-shares of China Telecom (HKG:0728) managed to eke out some gains, shares of China Unicom (HKG:0762) tumbled 2.1 percent in Hong Kong earlier today. Expect NYSE trading to follow the pattern from Asia.
Smaller cap Focus Media Holdings (NASDAQ:FMCN) looks to be vulnerable as well. The stock might have stretched too thin, according to the chart below. Huaneng Power International (NYSE:HNP), the largest Chinese independent power producer, is in trouble as well, should major U.S. indices weaken.
There is not a single China ADR on the extreme oversold position on Wednesday - expect for DYP and DGW. But these stocks are not on the screen due to relatively short stock market history. China Integrated Energy (NASDAQ:CBEH) has more downside left despite significant losses, according to the oversold chart. Shandas are not out of the woods yet, either, according to the chart below. Investors shouldn't raise hope for UTStarcom (NASDAQ:UTSI) and Actions Semiconductor wither, least not for the short run.
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.