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China stocks on FIRE suggests the overbought monitor

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burning_cash October 15, 2010 (Chinavestor) China Fire & Security (NASDAQ:CFSG) seems to have reached resistance level for short term, according to the overbought monitor below. Additional stocks in the danger zone include Suntech Power (NYSE:STP) from the solar sector, Yucheng Technologies (NASDAQ:YTEC), Agria Corp. (NYSE:GRO), Wonder Auto Technology (NASDAQ:WATG) and Cogo Group (NASDAQ:COGO). Stocks with more sustainable momentum include Home Inns & Hotels Management (NASDAQ:HMIN) and China Life Insurance (NYSE:LFC), according to the overbought monitor.

A non-sensational 11.8% advance in the past 5 trading days sent under performing China Fire & Security Group (NASDAQ:CFSG) overboard, reaching short-term theoretical highs. The overbought monitor suggests upside for the short term is limited for the stock.

Suntech Power (NYSE:STP), one of the best known Chinese solar makers, surged 12.3% since last Friday and is in the danger zone as well. Investors have started to bet on the solar sector as earnings near. Trina Solar (NYSE:TSL), Yingli Green Energy (NYSE:YGE) and JA Solar (NASDAQ:JASO) surged earlier this year leaving STP trading at a relative discount.

Yucheng Technologies (NASDAQ:YTEC) has caught fire along with Agria Corp. (NYSE:GRO) though downside risk exceeds upside potential. This was the case with AgFeed Ind. (NASDAQ:FEED) and Origin Agritech (NASDAQ:SEED) a day before, the overbought monitor predicting precisely their short term ceiling on Thursday morning.

Wonder Auto Technology (NASDAQ:WATG) and other auto related stocks may extend gains as China's car sector continues to show strength. Nevertheless investors have to exercise caution with WATG for the short term.

Cogo Group (NASDAQ:COGO) was able to hang on to gains from the previous days. But profit taking is expected to keep the stock at bay for the upcoming days.

China Life Insurance (NYSE:LFC) is a solid China play that is driven by the strong performance of the Shanghai Composite Index. LFC derives 10%-15% of net income from investment returns tied to the performance of key components of the Shanghai Composite. With mainland investors on fire, outlook for China Life Insurance (NYSE:LFC) sweetens.

Home Inns & Hotels Management (NASDAQ:HMIN) is trading at all time highs but has strong money flows and is trading off theoretical highs at the moment. Expectations run high that the company will deliver another blockbuster quarter.

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The oversold end of the China stock universe is lacking action for today.

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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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