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China stock extremes on January 20

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warning1 January 20, 2011 (Chinavestor) China-Biotics (NASADAQ:CHBT) is overbought and ready for a correction but short term outlook is better for China XD Plastics (NASDAQ:CXDC), one of the largest plastic parts supplier for the auto industry, and China Infrastructure Investment Corp (NASDAQ:CIIC). But most stock extremes are to be found on the oversold end of the China stock universe. New Oriental Education & Tech. Group Inc (NYSE:EDU), the largest player in the education sphere, is oversold after failing to impress investors with latest quarterly results. Despite some losses, more downside is possible for Fuqi International (NASDAQ:FUQI), Xinhua Sports & Entertainment Limited (NASDAQ:XSEL) and Silvercorp Metals (NYSE:SVM) for these stocks are not oversold to the extremes yet.

Looking at the overbought end of the China stock universe, China-Biotics (NASADAQ:CHBT) has reached theoretical highs. This implies downside risk now exceeds upside potential.

China XD Plastics (NASDAQ:CXDC) was able to hang on to Tuesday gains on Wednesday despite a broad market sell-off. This bodes well going forward should market sentiment improve. The stock is not overbought to the extremes yet, leaving some room to the upside.

China Infrastructure Investment Corp (NASDAQ:CIIC) had a strong day on Wednesday with some pick up in volume. More gains are possible, according to the overbought chart below.

OB_2011120

New Oriental Education & Tech. Group Inc (NYSE:EDU) was among the first Chinese companies to release quarterly earnings for the season. The numbers failed to impress investors sparking a sell-off on Wednesday. Part of it was market related but the fall in the stock price is unusual. Despite latest losses, the stock hasn't reached theoretical lows yet, leaving more room to the downside.

Fuqi International (NASDAQ:FUQI) and Xinhua Sports & Entertainment Limited (NASDAQ:XSEL) look similar on the oversold chart below. Both stocks fell hard yet more downside is possible.

Silvercorp Metals (NYSE:SVM) bounced back up from the extreme oversold position on Tuesday but that was a dead cat bounce, it seems. The stock is under intense pressure and may take some time before it gets off the ground.

OS_2011120

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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