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Earnings, momentum drive China stocks to extremes early November

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currency_3 November 9, 2010 (Chinavestor) Forget the troubles with the DJIA, says Wonder Auto Tech (NASDAQ:WATG).  But the overbought list of the China stock universe doesn't stop there. China Sky One Medical, Inc (NASDAQ:CSKI) and A-Power Energy Generation Systems, Ltd. (NASDAQ:APWR) along with China Automotive Systems (NASDAQ:CAAS) are right up there as well. But unusual advance of WSP Holdings (NASDAQ:WH) is just as dangerous going forward as current plateau of Longtop Financial Technologies Limited (NYSE:LFT) testifies. Silvercorp Metals (NYSE:SVM) kept going with new stocks on the overbought screen to look out for such as China BAK Battery (NASDAQ:CBAK) or China Fire & Security Group, Inc (NASDAQ:CFSG).

The overbought monitor picked up the unusual move of Wonder Auto Tech (NASDAQ:WATG) yesterday morning as a developing story  but by now the stock is truly trading at extremes. High volume on Monday suggest the the stock may extend gains into Tuesday but downside risk is significant! It will all come down to earnings- the company is reporting right now before the open...

A-Power Energy Generation Systems, Ltd (NASDAQ:APRW) did very similar to Wonder Auto (NASDAQ:WATG) on Monday; both stock accelerated with high volume. But they face the same challenge: advancing too fast, too much... Investor, take profits on Tuesday...

China Automotive Systems (NASDAQ:CAAS) was and remains to be an explosive stock; but things may change to worse should market weakness turn into something more serious. The company is going to report before the open today, giving direction for the stock for the rest of the week.

WSP Holdings (NASDAQ:WH) was a frequent guest on the oversold monitor earlier the year but now is just the opposite. The stock is trading dangerously close to theoretical highs.

Silvercorp Metals (NYSE:SVM) stayed on fire on Monday thanks to some significant firepower behind it. But the stock stepped out of its normal trading range and has approached theoretical highs... may be time for profit taking...

China BAK Battery (NASDAQ:CBAK) had a phenomenal last two days or rather a fantastic past three months. Despite the surge, more upside is possible though, according to the overbought chart below.

China Fire & Security Group, Inc (NASDAQ:CFSG) is another developing story. The stock picked up steam in the last two hours of trading on Monday putting it in par with China Bak Battery (NASDAQ:CBAK) from a technical point of view. More upside is possible...

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The oversold end has some action but none of the stocks on the screen below are technically oversold. This renders the oversold monitor useless ahead of trading on Tuesday.

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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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