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Small cap overbought China stocks on the rise

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warning1 October 7, 2010 (Chinavestor) The overbought indicator is somewhat misleading this time: sleepy Ata Inc. (NASDAQ:ATAI) and KongZhong Corp. (NASDAQ:KONG) just moved to extremes but that's due to lack of trading volume not a big jump. The real overbought stocks with downside risk include ChinaCast Education (NASDAQ:CAST), Xinyuan Real Estate Co., Ltd (NYSE:XIN) and coal miner Yanzhou Coal Mining Co. (NYSE:YZC). Momentum stocks with questionable upside include Fushi Copperweld (NASDAQ:FSIN), Zhongpin Inc. (NASDAQ:HOGS) and China Yuchai International Limited (NYSE:CYD). New Oriental Education & Technology Group (NYSE:EDU) may level off, finally...

 

Xinyuan Real Estate Co., Ltd (NYSE:XIN) jumped 16.67 percent on Wednesday sending its shares technically overbought. ChinaCast Education Corp. (NASDAQ:CAST) is also in the danger zone. While New Oriental Education (NYSE:EDU) is oversold, investors seem to swap it favoring CAST instead...

Fushi Copperweld (NASDAQ:FSIN) has been creeping higher, altogether 11.5 percent for the last five days. While the stock is not trading at extremes yet, dowside risk is clearly on the rise.

Zhongpin Inc. (NASDAQ:HOGS) looks very similar to Zhongpin Inc. (NASDAQ:HOGS) when it comes to technicals. HOGS advanced 16.2 percent since last Wednesday and is in the danger zone. Downside risk now exceeds upside potential, according to the overbought chart below.

China Yuchai International Limited (NYSE:CYD) is another stock with increasing risk. The stock advanced 7.1 percent in the last five trading days and is ready to take a break.

OB_2010107

New Oriental Education & Technology Group (NYSE:EDU) is the most oversold China stock today. More downside is possible despite the tumble from $116 to $90. Investors will learn more about EDU once quarterly results will get released.

Despite a sizable fall, more downside is possible for Noah Education (NYSE:NED) and Tongxin International (NASDAQ:TXIC).

OS_2010107

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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