January 26, 2011 (Chinavestor) The weakness of the DJIA was felt all over the China stock universe on Tuesday. Profit taking took a toll on Chinese solar stocks with LDK Solar (NYSE:LDK) taking the lead. As a result, there is no overbought China stock at the moment. Small cap, low volume ATA inc. (NASDAQ:ATAI) is the closest to theoretical highs but that's due to a low volume. E-House (China) Holdings Limited (NYSE:EJ) has been trading in a narrow range lately with some upside potential. China Unicom (Hong Kong) Limited (NYSE:CHU) has more upside left as well.
But most action is taking place on the oversold end of the China stock universe. China Mobile (NYSE:CHL) is showing the most dramatic decline while investors looking for upside better pay attention to China Southern Airlines (NYSE:ZNH). Stocks with abrupt decline include China Natural Resources Inc. (NASDAQ:CHNR) and China Fire & Security Group, Inc. (NASDAQ:CFSG).
China Unicom (NYSE:CHU) moved higher in Hong Kong earlier the day, suggesting more upside is left despite latest rally. The good news is that the stock is far from theoretical highs, leaving room for the move.
But again the overbought chart is lacking action following Tuesday's correction.
China Mobile (NYSE:CHL) is hurt on 3G growth and the suffering is not necessarily over yet, according to the oversold chart. Despite heavy losses, the stock is far from extreme oversold position, leaving more room for some more "good sweating".
Chinese airliners are looking good on valuation, oil price besides technicals. China Southern Airlines (NYSE:ZNH) has a lot of ground to make up and is expected to bounce back up strongly on Wednesday.
Outlook is less optimistic for China Natural Resources Inc. (NASDAQ:CHNR) and China Fire & Security Group, Inc. (NASDAQ:CFSG). Both stock are close to theoretical lows but the turn around doesn't look imminent.
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.