October 6, 2010 (Chinavestor) A large number of Chinese stocks are in the danger zone technically speaking, thanks to an almost 200 points run by the DJIA on Tuesday. Energy stocks extended their gains as oil rose above $82/barrel. Petrochina Co. Ltd. (NYSE:PTR), the largest Chinese oil producer, continues to tower the overbought China stock list. Another energy company, Yanzhou Coal (NYSE:YZC) is enjoying the ride along with China Petroleum & Chemical Corp. (NYSE:SNP), Asia's largest refiner. But technical strength of Harbin Electric Inc. (NASDAQ:HRBN) is contradictory to high energy prices and suggests the rally may come to an end soon. ChinaCast Education (NASDAQ:CAST) continues to do well despite shorting of the sector: New Oriental Education & Tech. Group (NYSE:EDU) and Noah Education Holdings (NYSE:NED) have been in the red as the oversold chart testifies. Latest uptick in Perfect World (NASDAQ:PWRD) and UTStartcom (NASDAQ:UTSI) didn't go unnoticed by the overbought monitor either.
Downside risk exceeds upside potential for large cap Chinese stocks, according to the chart below. Petrochina Co. Ltd. (NYSE:PTR) has been steadily advancing as the price of oil headed north, but is in a tight spot at the moment. The same is true for Yanzhou Coal Mining (NYSE:YZC), China's third largest coal miner. The rally is fed by high oil prices but that is subject to change. Current extreme technical position of both stocks suggests a correction will be sharp should oil prices subside.
China Petroleum & Chemical Corp. (NYSE:SNP) is another huge Chinese oil company that enjoyed a robust ride on the back of high oil prices. The company just bought a 40 percent interest into Repsol's Brazil unit and is less vulnerable than Yanzhou Coal (NYSE:YZC) or Petrochina Co. Ltd. (NYSE:PTR).
Harbin Electric Inc. (NASDAQ:HRBN) jumped 4.6 percent on Tuesday but is fundamentally weak when oil and coal prices are high. Mopre upside is possible should energy prices fell.
ChinaCast Education (NASDAQ:CAST)is trading at extremes as well; the stock is up 22 percent since September 10 and is getting to a point where it will have to take a break.
Chinese online gamers are coming back to play, at least this is what latest surge of Perfect World (NASDAQ:PWRD) suggests.Shanda Games (NASDAQ:GAME) caught momentum as well.
UTStartcom (NASDAQ:UTSI) brouke out of the $2 range and is established in the $2.50 range now. But more upside is less and less likely as the stock is trading at an extreme at the moment.
New Oriental Education & Tech. Group (NYSE:EDU) continues to fall after weak pre-announcement last month. Here is another testament that when industry leaders tumble, the sector follows: China Edu Corp. (NASDAQ:CEDU) is almost as oversold as EDU but it was Noah Education Holdings (NYSE:NED) delivering the shocker on Tuesday with a 10.2 percent dive...
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.