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China stock watch list on Oct. 21

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telescope1 October 21, 2010 (Chinavestor) Two opposite days on Tuesday and Wednesday changed the overbought & oversold China stock landscape[p completely. A large cap ADR took the lead, China Life Insurance (NYSE:LFC) while solar and food stocks got wiped off the overbought monitor. Qiao Xing Universal Resources (NASDAQ:XING) and Jinpan International (NASDAQ:JST) are the two most overbought Chinese stocks of the day but investors have to be careful with Cogo Croup (NASDAQ:COGO), Guangshen Rail (NYSE:GSH) and HQ Sustainable Maritime Industries (AMEX:HQS) as well.

 

This latter group has been plateauing lately with significant downside risk. Cogo Group (NASDAQ:COGO) and HQ Sustainable Maritime Industries (AMEX:HQS) are much more vulnerable then large cap, low beta Guangshen Rail (NYSE:GSH), nevertheless all these stocks carry high downside risk.

China Life Insurance (NYSE:LFC) is driven by the solid performance of the Shanghai Composite Index (SHA:000001). Over ten percent of China Life's earnings are tied to the performance of the index that soared over 20% in the past few months. Strong money flows suggests the Shanghai Composite Index (SHA:000001) will not stop at the 3,000 level.

Qiao Xing Universal Resources (NASDAQ:XING) advanced over 20% on Wednesday and became overbought. The stretch looks too much, too fast, suggesting the stock is prone to a correction.

Jinpan International (NASDAQ:JST) is just as vulnerable according to the overbought monitor below. Investors have to consider how much upside is left for both stocks while risk is clearly on the rise.

OB_20101021

Most big losers of Tuesday made up their losses on Wednesday; such as Trina Solar (NYSE:TSL) or Rino Int. (NASDAQ:RINO). With no overbought China stock at extremes, the indicator below provides limited guidance into the trading day for Thursday.

OS_20101021

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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