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Careful with oversold China stocks, Dec. 15

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warning3 December 15, 2010 (Chinavestor) Origin Agritech (NASDAQ:SEED) pulled back on Tuesday, just as predicted, leaving the overbought China stock chart without any real stock extremes for Wednesday. Shanda Games (NASDAQ:GAME) has some momentum but that's about it for the overbought China stock list for Wednesday.

But the oversold end of the China stock universe is full of action. Three stocks are trading at theoretical lows, namely Ctrip.com Inc. (NASDAQ:CTRP), Telestone Technologies (NASDAQ:TSTC) and Home Inns & Hotels Management (NASDAQ:HMIN). But the steep fall of China TechFaith Wireless (NASDAQ:CNTF) calls for attention as well. Solar stocks are on the oversold like like LDK Solar (NYSE:LDK) and JA Solar (NASDAQ:JASO) - though these stocks are not oversold to the extremes yet. Airliners improved on Tuesday sending China Southern Airlines (NYSE:ZNH) off the danger zone but the company's H-shares fell hard in Hong Kong on Wednesday morning suggesting more downside is on the way for China's largest domestic airliners.

Low volume Actions Semiconductor Co., Ltd. (NASDAQ:ACTS) took the lead on the overbought chart, but again, there is no stock at extremes on the chart below. Shanda Games (NASDAQ:GAME) has shown some momentum but has more upside left - should overall market sentiment allow that.

OB_20101215

Large cap Internet stock, Ctrip.com Inc. (NASDAQ:CTRP), fell over 13% on Tuesday - the most in 52 weeks. While the stock is oversold to the extremes, it is going to be a hard fight to make a comeback on Wednesday should U.S. markets follow wold markets lower. Our analysis revealed that there is a 50% change that Ctrip.com Inc. (NASDAQ:CTRP) will make a comeback on Wednesday - something that looks less likenely now that world markets fell on Spain's credit woes.

Home Inns & Hotels Management (NASDAQ:HMIN) made a remarkable comeback after a low open on Tuesday but remains oversold. Chinese Internet stocks have fallen out of favor lately but valuation will come into play soon, prompting value buyers to step forward. Again, HMIN has the best chance to come back real strong when market conditions are favorable - not like today.

China TechFaith Wireless (NASDAQ:CNTF) is a developing story. The stock fell just under 5% for the week so far but more downside is possible, according to the oversold chart below.

Another interesting segment of the market are solar stocks. When price of oil goes down, outlook for solars worsen. So Wednesday is not a good day for relatively oversold plays such as LDK Solar (NYSE:LDK), but value buyers should pay attention to a relatively low price here. Same is true for JA Solar (NASDAQ:JASO), China Sunergy (NASDAQ:CSUN) and Canadian Solar (NASDAQ:CSIQ) from the oversold chart.

OS_20101215

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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