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China stocks test water, October 28

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flu_1 October 28, 2010 (Chinavestor) Most overbought China stocks pulled back or leveled off, like Sohu.com Inc. (NASDAQ:SOHU) or China Yuchai International Limited (NYSE:CYD), giving up the most overbought spot to new entrants. Even a 5% advance in five days sent shares of low volume China Finance Online (NASDAQ:JRJC) over the board, according to the chart below. Vanceinfo Technologies (NYSE:VIT) has been creeping higher since early October, something the overbought indicator caught. But most Chinese stocks are not trading at extremes as market sentiment dried up lately. Strong performers for the month have taken a break on Wednesday, like Rino International (NASDAQ:RINO) and Shanda Games (NASDAQ:GAME). These stocks have more upside left, should bulls grab the horns of the market.

The oversold end of the China stock universe has been warming up lately. Huaneng Power International (NYSE:HNP) fell hard, losing 10% in the last five days alone, and is the most oversold China ADR at the moment. China Green Agriculture (NYSE:CGA), a Chinese organic fertilizer producer and distributor, spiked 6.5% as bottom fishers stepped forward. There seems to be a lot of buying interest when the stock is under $7.

Back to the overbought screen: China Finance Online (NASDAQ:JRJC) took the lead on the most overbought China stock screen today. But that doesn't mean the stock is overbought- rather investors took profits of previous high fliers, surrendering the position to less liquid names like China Finance Online (NASDAQ:JRJC) or Ata inc. (NASDAQ:ATAI).

Vanceinfo Technologies (NYSE:VIT) is different from the group above due to its long rally stemming since October 8. But investors have to ask themselves: how long this rally is going to last. This stock doesn't have the muscle to fight the market, suggesting a downturn is the most likely scenario at this point.

Some of the best stocks for October have pulled back, away from overbought extremes. This is the case with Rino International (NASDAQ:RINO) and Shanda Games (NASDAQ:GAME). Both stocks are far from overbought nevertheless overall market sentiment is going to rule short term direction for both hot commodities.

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There is not a single Chinese stock that's oversold, technically speaking. Yet savvy investors took note of the over 10% decline in Huaneng Power International (NYSE:HNP). While more downside is possible, power generators are going to back to play as soon as oil and coal prices subside.

Shorts were pushing China Green Agriculture (NYSE:CGA) lower for quite some time, and now the company has to fight allegations. If those alleged wrongdoings are true or not, we can't tell. But what is evident that there was some very significant buying taking place yesterday at  13:30, popping the stock up 6.4% for the day. It looks that downside is limited for this sexy China play.

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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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