October 5, 2010 (Chinavestor) There is a highly unusual situation at the moment: a large cap China stock took the most extreme overbought position for Tuesday - Petrochina Co. Ltd. (NYSE:PTR). Currently extreme position of Yanzhou Coal (NYSE:YZC) is another shocker... But considering that oil is trading above $80 a barrel, there is a good reason for such a pattern. Sinopec (NYSE:SNP) and China's offshore oil specialist, CNOOC Ltd. (NYSE:CEO), are among the 25 most extreme China stocks on Tuesday...
Large cap Chinese stsocks don't usually get overbought to the extreme. Now, Petrochina Co. Ltd. (NYSE:PTR), is a company that touched the $1 trillion market cap at one point back in 2007... While its market cap is back on earth and stands at "only" $222.1 billion, the overbought position is extreme. All we can say at this point is this: TAKE PROFITS NOW.
Yaznhou Coal Mining (NYSE:YZC) is China's third largest coal miner and is trading at an extreme, as well. A pullback is imminent, according to the overbought chart below.
If energy prices start softening up, CNOOC Ltd. (NYSE:CEO), is in danger. This company has no oil refining as of yet, and any cut in the price of oil cuts deep into its top and bottom line.
Sinopec (NYSE:SNP), Asia's largest refiner by volume, is a different story. The stock is not overbought to the extreme and will achieve higher refining margins should oil prices fall.
ChinaCast Education (NASDAQ:CAST) is less overbought as on Monday, but upside looks limited for the short term.
ShengdaTech Inc. (NASDAQ:SDTH) fell 5 percent on Monday, just as expected earlier that day.
Not a single Chinese ADR is oversold to the extreme at the moment, according to the chart below. Simcere Pharma (NYSE:SCR) fell ten percent in mid-day trading yet more downside is possible, according to the oversold indicator.
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.