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Selected small cap China ADRs in danger on Oct. 18

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watch_5 October 18, 2010 (Chinavestor) October has seen just as strong as September for Chinese stocks so far. The number of Chinese ADRs trading close to theoretical highs is on the rise while the oversold end of the China stock universe is lacking action.

The most vulnerable stocks are those that advance suddenly all the way to their theoretical highs. This is the case with GigaMedia Limited (NASDAQ:GIGM) and HQ Sustainable Maritime Industries, Inc (AMEX:HQS). Sharp advance for Rino International (NASDAQ:RINO), Yucheng Technologies (NASDAQ:YTEC) and Ata Inc. (NASDAQ:ATAI) calls for attention as well. Cogo Group (NASDAQ:COGO) and China TechFaith Wireless (NASDAQ:CNTF) are looking slightly better on the overbought chart below.

The problem with this second group is that while Rino International (NASDAQ:RINO) hasn't reached theoretical highs yet, the stock looks vulnerable should market sentiment turn negative. Yucheng Technologies (NASDAQ:YTEC) and Ata Inc. (NASDAQ:ATAI) looks very similar to Rino International (NASDAQ:RINO) from a technical point of view.

By definition, stocks are considered overbought when they approach theoretical highs. This is the case for China Fire & Security (NASDAQ:CFSG) though the stock stopped moving higher. But the advance of GigaMedia Ltd. (NASDAQ:GIGM) and HQ Sustainable Maritime Industries, Inc (AMEX:HQS) seem excessive according to the overbought chart below. Both stocks are in the danger zone.

China Life Insurance (NYSE:LFC) and Sinopec (NYSE:SNP) are trading above thier trading envelope as well, suggesting downside risk in on the rise for both large cap stocks.

While less vulnerable then GigaMedia (GIGM), downside risk exceeds upside potential for Cogo Group (NASDAQ:COGO) and China TechFaith Wireless (NASDAQ:CNTF).

OB_20101018

The oversold end of the China stock uiverse is missing action. There is not a sinlge oversold China stock at the moment, technically speaking.

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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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