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Chinese momentum stocks to watch on September 20

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watch_4 September 20, 2010 (Chinavestor) Huaneng Power International (NYSE:HNP) is the most overbought China stock this morning and is a cause of concern... New Oriental Education (NYSE:EDU) is trading close to theoretical highs, something investors have to think about. Explosive Melco Crown Entertainment (NASDAQ:MPEL) is just as vulnerable as 51job Inc. (NASDAQ:JOBS), according to the overbought chart below. The sudden jump in the price of China Real Estate Information (NASDAQ:CRIC) calls for attention as well. Selected oversold stocks with a chance of a turnaround include China Integrated Energy (NASDAQ:CBEH), Actions Semiconductor (NASDAQ:ACTS) and possible Gushan Environmental Energy (NYSE:GU).

Back to the overbought screen: Huaneng Power International (NYSE:HNP) is clearly overbought after a sting of rallies last week. The cause for the rally was a report by Citi that a 15-20 percent tariff increase is possible as early as October. All major listed power producers jumped last week, including Hong Kong listed Datang Power and Huandian Power.

New Oriental Education (NYSE:DU) is the industry leader in the education segment and is a fundamentally solid stock. While it is not expected to fall apart during a bull run, current stock price suggests the rally might slow down.

Melco Crown Entertainment (NASDAQ:MPEL) and 51job Inc. (NASDAQ:JOBS) look similar to New Oriental Education (NYSE:EDU) on the overbought chart, but are different. in many aspects  Considering that MPEL and JOBS are smaller cap, NASDAQ listed China ADRs, their trading characteristics is different. They tend to fly high but can crumble quickly should market sentiment turn around.

China Real Estate Information (NASDAQ:CRIC) jumped 17 percent at the end of last week but the size of the advance suggests a pullback is the mosst likely scenario. Overbought stsocks are those that approach theoretical highs and those that advance too fast, too much. China Real Estate Information (NASDAQ:CRIC) falls into this second category.

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China Integrated Energy (NASDAQ:CBEH) has been leading the oversold China stock universe for too long and might have hot bottom, according to the chart below. Bio-diesel producers are out of favor, as is evidenced by the steep fall in the price of Gushan Environmental Energy (NYSE:GU). Both CBEH and GU may bounce back should market sentiment change for better.

The sudden and steep fall in Actions Semiconductor (NASDAQ:ACTS) suggests the worst is over for the stock. But usefulness of technical indicators is questionable for smaller cap, less liquid Chinese stocks such as ACTS.

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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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