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Oversold China stocks bounce back, Dec 14

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advance_8 December 14, 2010 (Chinavestor) Looking at Chinese stock extremes this morning, Origin Agritech (NASDAQ:SEED) is calling for a correction on the overbought chart below. But most extremes are on the oversold chart, like Home Inns & Hotels Management (NASDAQ:HMIN), Focus Media Holdings (NASDAQ:FMCN) and China Southern Airlines (NYSE:ZNH). Stocks with a significant loss of momentum include Changyou.com Inc. (NASDAQ:CYOU), China TechFaith Wireless (NASDAQ:CNTF) and China Sunergy (NASDAQ:CSUN). These stocks are not oversold yet suggesting more downside is possible. Origin Agritech (NASDAQ:SEED) advanced 15% since last week and became overbought, according to the chart below. The rest of the overbought China stock universe is not trading at extremes yet as the following chart testifies.

OB_20101214

The real action is taking place on the oversold monitor this morning. Home Inns & Hotels Management (NASDAQ:HMIN) fell over 10% from last week and is off by 18% for the last 30 days. The stock now is trading at theoretical lows suggesting a bounce back is imminent.

Focus Media Holdings (NASDAQ:FMCN) is off 10% for the last five trading days and is almost as oversold as HMIN.

China Southern Airlines (NYSE:ZNH) is oversold and is ready for a comeback.

The next group of stocks present a developing story. Changyou.com Inc. (NASDAQ:CYOU), China TechFaith Wireless (NASDAQ:CNTF) and China Sunergy (NASDAQ:CSUN) show a significant decline over the last week but are not trading at extremes yet. Neither these stocks are trading close to theoretical lows, suggesting more downside is possible.

OS_20101214

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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