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China Stock Xtremes on September 29

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obos-6-10-tumb September 29, 2010 (Chinavestor) The market experienced some sew-saw action lately, increasing the volatility of certain Chinese stocks. ShengdaTech Inc. (NASDAQ:SDTH) rose 2.15% on Tuesday but it's actually up 8.7% for the week and is not in the danger zone. Stocks at a vulnerable position include Vanceinfo Technologies (NYSE:VIT), LDK Solar (NYSE:LDK) and Baidu.com (NASDAQ:BIDU). As expected, upside was limited for formerly overbought AirMedia (NASDAQ:AMCN) and Yanzhou Coal (NYSE:YZC) on Tuesday. Home Inns & Hotels Management (NASDAQ:HMIN) continues to reach new all time highs - but may keep doing so until it becomes truly overbought. Ctrip.com International (NASDAQ:CTRP) is another liquid NASDAQ play that enjoys strong money flows.

 

There are two stocks trading at extremes on the oversold end of the China stock universe: New Oriental Education & Tech. Group (NYSE:EDU) and Gushan Environmental Energy (NYSE:GU).

But it's the overbought stock list that looks vulnerable today. Sleepy ShengdaTech Inc. (NASDAQ:SDTH) rose over 8 percent in just two days and is now out of its comfort zone. It looks like upside is limited while downside risk is on the rise...

Vanceinfo Technologies (NYSE:VIT) looks similar to LDK Solar (NYSE:LDK) on the overbought screen below. Both stocks have risen too fast, too much and a correction looks inevitable. Larger cap Baidu.com (NASDAQ:BIDU) enjoys strong money flows but it is questionable how long can BIDU fight the market.

Investors found save haven in larger, liquid stocks lately helping to push up prices of Ctrip.com Int. (NASDAQ:CTRP) and Home Inns & Hotels Management (NASDAQ:HMIN). Both stocks have approached theoretical highs but might be able to stay on the top of the game. It boils down to market sentiment: should markets head north outlook remains bright for HMIN, BIDU and CTRP.

AirMedia (NASDAQ:AMCN) and Yanzhou Coal (NYSE:YZC) were two overbought China stocks to the extremes. They are off the hook thanks to a good size correction on Tuesday.

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The sudden drop in the price of New Oriental Education & Tech. Group (NYSE:EDU) came to a halt on Tuesday; the stock actually gained 1.64%. It looks like current price may be a temporary bottom...

Gushan Environmental Energy (NYSE:GU) tumbled on Tuesday and is back where is was last Monday. The stock is not oversold to the extreme, suggesting more downside is possible!

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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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