January 21, 2011 (Chinavestor) Technicians would consider three Chinese stocks overbought this morning albeit to a different degree. Short term upside looks limited for China-Biotics Inc. (NASDAQ:CHBT) and China XD Plastics Co Ltd (NASDAQ:CXDC) while China Architectural Engineering, Inc. (NASDAQ:CAEI) is off the chart due to no-compliance to NASDAQ trading rules in the past. Trina Solar (NYSE:TSL) has more upside though downside risk is clearly on the rise. New Oriental Education & Tech. Group Inc (NYSE:EDU) is clearly oversold but is driven by fundamentals and might get stuck in the rut for some time. China Southern Airlines (NYSE:ZNH) is offering a bargain hunting, according to the oversold chart.
Back to the overbought screen. China-Biotics Inc. (NASDAQ:CHBT) has leveled off and is not in the danger zone. The good news is that overbought stocks can hang on to gains, as long as overall market sentiment remains strong. Nevertheless today may be a good time for taking profits off China XD Plastics Co Ltd (NASDAQ:CXDC)as well as China-Biotics Inc. (NASDAQ:CHBT).
Train Solar (NYSE:TSL) had a strong January as the sector recovered from fourth quarter slump in 2010. Solar stocks got a second wing as earnings approach. Demand for the product is sound and oil above $90 a barrel makes it even more stronger.
China Unicom (NYSE:CHU) is displaying unusual momentum but has more upside, according to the chart below.
New Oriental Education & Tech. Group Inc (NYSE:EDU)is oversold but may not bounce back up right away. The company failed to impress investors with its latest quarterly earnings, released on Tuesday.
China Southern Airlines (NYSE:ZNH) and China eastern Airlines (NYSE:CEA) fell hard this week but might show some strength as bargain hunters may step forward. Profitability for the sector is very strong both in China and globally. High oil price is a problem going forward but both companies look good on valuation at this point.
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.