October 12, 2010 (Chinavestor) Shorts are on the defense as selected small cap Chinese stocks caught fire. Nothing could stop AgFeed Industries (NASDAQ:FEED), Origin Afritech (NASDAQ:SEED) and Agria Corp. (NYSE:GRO) from the food sector on Monday. Fushi Copperweld (NASDAQ:FSIN), Suntech Power (NYSE:STP) and WSP Holdings (NYSE:WH) are overstretched just as much. New stocks on the overbought screen include American oriental Bioengineering (NYSE:AOB) and online gamer Changyou.com (NASDAQ:CYOU). Shanda Games (NASDAQ:GAME) is coming up but is not overbought yet. Gushan Environmental Energy (NYSE:GU) is another stock with increasing downside. Fertilizer companies are looking better than food ones; China Agritech (NASDAQ:CAGC) and China Green Agriculture (NYSE:CGA) are not extremely overbought despite sizable gains in the last two days.
By definition, a stock is considered overbought whne it approached theoretical highs. This is the case with AgFeed industries (NASDAQ:FEED) and Origin Agritech (NASDAQ:SEED). Besides trading close to theoretical highs, Agria Corp. (NYSE:GRO) rose from below its tradsing envelope to way above it in the past few days, suggesting upside potential is really limited here.
Fushi Copperweld (NASDAQ:FSIN) is trading at extremes as well; downside risk exceeds upside potential. Suntech Power (NYSE:STP) is the most overbought solar stock at the moment. High energy prices and the upcoming earnings season have fueled a wide range of solar stocks lately. Five out of the best five ADRs came from the solar sector on Monday.
Low volume stocks may seem like overbought - like WSP Holdings (NYSE:WH). This stock advanced $.20 but that translated to 17% given the low stock price. The overbought monitor reached its limitation.
American Oriental Bioengineering (NYSE:AOB) was among the most oversold China stocks for a long time. It just popped 12.5% with more upside on the road. Given her volatile nature, there is no one who could tell where the stock is going to be in five days from now.
Gushan Environmental Energy (NYSE:GU) is a bio-diesel producer that popped. Management is considering buying more shares but it's the overall bio-diesel sector that got a boost. China Integrated energy (NASDAQ:CBEH) is up 28% since Monday as investors get back to the sector.
Changyou.com (NASDAQ:CYOU) is getting overbought suggesting Shanda Games (NASDAQ:GAME) is a better play at the moment. While these two players advanced, NetEase.com (NASDAQ:NTES) and Perfect World (NASDAQ:PWRD) fell on Monday. A clear rotation is taking place within the sector. Oversold ones come up while some of the best ones have started to fell.
While food stocks may have stretched too thin, fertilizer ones look better at the moment. China Agritech (NASDAQ:CAGC) and China Green Agriculture (NYSE:CGA) don't show up on the overbought screen despite significant gains. China Agritech (NASDAQ:CAGC) issued a statement saying it stands behind current numbers and stock price is hurt by artificial shorting. The same news helped China Green Agriculture (NYSE:CGA) to climb back over $10/share.
Where is the bottom for Tongxin International (NASDAQ:TXIC), many wonder. The stock is now oversold and may find support in the near future.
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.