November 10, 2010 (Chinavestor) The sudden fall of Chinese auto stocks, Wonder Auto Technologies (NASDAQA:WATG) or China Automotive Systems (NASDAQ:CAAS), removed these stocks from the overbought screen giving room for new contenders like Shanda Interactive (NASDAQ:SNDA) or HQ Sustsainable Maritime Industries (AMEX:HQS). Longtop Financial Technologies Limited (NYSE:LFT), WSP Holdings (NYSE:WH) and China Housing & Land Development, Inc. (NASDAQ:CHLN) all slowed down, as expected after reaching extreme overbought positions. China Integrated Energy (NASDAQ:CBEH) is on the roll while Fuqi International, Inc. (NASDAQ:FUQI) has loosing steam albeit interest remains high for the stock.
Investors have long realized the limits of technical indicators, including the overbought and oversold monitor, but its usefulness is less talked about. When the market heads south, the most viulenerable or the most overbought sstocks are first to fall. This partially explains the disappoining perforemnce of Wonder Auto Technology (NASDAQ:WATG) and China Automotive Systmes (NASDAQ:CAAS). Both stocks became overbought and were unable to hang on to previous gains despite reporting more than fine financials.
Shanda Interactive (NASDAQ:SNDA) is an interesting story. The stock gained 4.6% yet its main asset, Shanda Games (NASDAQ:GAME) fell! This doesn't make sense and given Shanda Interactive's (NASDAQ:SNDA) extreme position, the stock is highly vulnerable at this point.
HQ Sustsainable Maritime Industries (AMEX:HQS) was one of the best perforking China ADR on Tuesday. Investrors snapped up the stock based on strong earnings. Current position is teneaus, might fall any time from here...
China Integrated Energy (NASDAQ:CBEH) is another stock on the screen that has mojo. The stock managed to eke out some gains on Tuesday, a feast given most stocks fell despite sound earnings like Wonder Auto Technologies (NASDAQ:WATG) and China Automotive Systems (NASDAQ:CAAS). Current position suggest more upside is possible for this Chinese bio-diesel producer.
Fuqi International (NASDAQ:FUQI) is a developing story. The stock leveld off on Tuesday but volume is high suggesting a break-out is possible. Fuqi International (NASDAQ:FUQI) hasn't reached theoretical highs yet, suggesting more upside is left.
There is not much change to the oversold end of the China stock universe. China Unicom (NYSE:CHU) has been on a slide but is far from a collapse. Home Inns & Hotels Management (NASDSQ:HMIN) fell following Ctrip.com 's earnings... Moment of truth is near, HMIN is going to report after the close today.
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.