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Overbought China stocks in danger, Dec. 6

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warning2 December 6, 2010 (Chinavestor) Most overbought China stocks are in danger as the European debt crisis continues to unfold. Sina Corp. (NASDAQ:SINA) is trading the closest to theoretical highs but investors better pay attention to vulnerable stocks like Ku6 Media Co., Ltd. (ADR) (NASDAQ:KUTV), Chindex International, Inc. (NASDAQ:CHDX), Global Sources (NASDAQ:GSOL), Linktone Ltd. (NASDAQ:LTON) and Silvercorp Metals (NYSE:SVM). Looking at oversold stocks, A-Power Energy Generation Systems, Ltd. (NASDAQ:APWR) isn't out of the woods yet and more downside is possible for China Architectural Engineering, Inc. (NASDAQ:CAEI) as well.

Back to the overbought screen. The good news is for Sina Corp. (NASDAQ:SINA) that despite showing strength lately, the stock hasn't reached theoretical highs. Sure, the stock will not be able to fight the market on Monday but downside looks limited.

Ku6 Media Co., Ltd. (ADR) (NASDAQ:KUTV) looks much more vulnerable than Sina Corp. (NASDAQ:SINA) at this point. The rally last week was too much,m too fast, according to the overbought screen below.

Another set of vulnerable stocks are those that are trading above their trading range. Chindex International, Inc. (NASDAQ:CHDX) and Global Sources (NASDAQ:GSOL) have clearly stepped out of their trading envelope suggesting downside risk is elevated.

Linktone Ltd. (NASDAQ:LTON) cleared its trading envelope last Wednesday after a spectacular jump but has been trading sideways ever since. Upside is limited with more increasing downside risk.

Silvercorp Metals (NYSE:SVM) is similar to Global Sources (NASDAQ:GSOL) although to a lesser degree.

OB_2010126

Disappointing earnings killed A-Power Energy Generation Systems, Ltd. (NASDAQ:APWR) last week but more downside is possible according to the oversold chart below. The stock hasn't reached theoretical lows yet...

Despite a significant drop, China Architectural Engineering, Inc. (NASDAQ:CAEI) isn't ready to bounce back up yet. The stock is trading below its trading envelope but hasn't approached theoretical lows.

OS_2010126

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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