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Selected China stocks stretching too thin on Oct. 4

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watch_5 October 4, 2010 (Chinavestor) Yanzhou Coal Mining (NYSE:YZC) may be the most overbought China stock at the moment but looking at its Hong Kong debut in October, more support is on the way. Petrochina Co. Ltd. (NYSE:PTR) is looking very strong on the chart as well. However smaller cap ChinaCast Education (NASDAQ:CAST) and ShengdaTech Inc. (NASDAQ:SDTH) are much more vulnerable, according to the overbought chart. The big jump in Zhongpin Inc. (NASDAQ:HOGS) ATA inc. (NASDAQ:ATAI) and in Canadian Solar (NASDAQ:CSIQ) didn't go unnoticed either.

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.

With that definition in mind the 10 percent plus rally for Yanzhou Coal Mining (NYSAE:YZC), China's third largest coal producer, is highly unusual. But as long as energy prices remain high, large cap companies are expected to hold on to previous gains or continue to advance. Petrochina Co. Ltd. (NYSE:PTR) just advanced 5.3 percent earlier in Hong Kong (HKG:0857), suggesting strong money flows are going to keep this giant rising on the NYSE as well.

Smaller cap ChinaCast Education (NASDAQ:CAST) is the best performing China stock from the education sector. But current rally suggests the stock will have to take a breather soon. We just had the opportunity to interview its CEO, Michale Santos two weeks ago. This is what Mr. Santos had to say: More Rodman Interview: ChinaCast Edu.

ShengdaTech Inc. (NASDAQ:SDTH) rose 13.4 percent last week but has been slowing down. Monday and Tuesday will be the "moment of truth". If the stock will keep rising, chances are that it may well extend current rally.

Investors have been increasingly picking selected smaller names as the fallout from DYP and DGW subsided. Zhongpin Inc. (NASDAQ:HOGS) rose 15.2 percent just in thee days, but is getting overbought. The fast advance suggests the stock will take a break soon.

ATA inc. (NASDAQ:ATAI) is trading way out iof its trading range and might be ready to a pullback as well. Smaller cap stocks don't stay close to theoretical highs for too long.

The Chinese solar sector has been on fire last month. Canadian Solar (NASDAQ:CSIQ) has started to catch up with the rest of the sector and accelerated last week. As long as energy prices remain high, solar stock will benefit.

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The oversold end of the China stock universe is relatively uneventful. Gushan Environmental Energy (NYSE:GU) is back to square one after a correction earlier last week. Upside is just as likely as more downside. The stock is not trading at extremes at the moment.

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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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