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Oversold stocks rule end of January

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bear_1 January 31, 2011 (Chinavestor) After a steep fall last Friday, the overbought monitor is lacking action on Monday. Sinopec (NYSE:SNP) and China Unicom (NYSE:CHU) are vulnerable. Sohu.com Inc. (NASDAQ:SOHU) advanced significantly last week ahead of earnings report. But more action is found on the oversold end of the China stock universe. City Telecom (NASDAQ:CTEL), China Real Estate Information Corporation (NASDAQ:CRIC) and New Oriental Education Corp. (NYSE:EDU) are closest to theoretical lows, something investors should pay attention to. But the significant fell of CNOOC Ltd. (NYSE:CEO), China Mobile (NYSE:CHL) and JA Solar Holdings (NASDAQ:JASO) are also developments seasoned investors notice.

Improving margins have helped Sinopec Corp. (NYSE:SNP) last week but the stock is vulerable to correction, according to the overbought chart below.

China Unicom (NYSE:CHU) was the best performing Chinese telecom company after reporting sound December 3G subscriber growth. But every rally comes to a halt eventually, something that is about to happen according to the overbought chart.

Sohu.com Inc. (NASDAQ:SOHU) is far from overbought though the rally before earning is clearly visible. The stock may move to either direction, depending on earnings. Fundamentals will certainly override technicals on Monday for Changyou.com Inc .(NASDAQ:CYOU) and Sohu.com Inc. (NASDAQ:SOHU).

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City Telecom (NASDAQ:CTEL), China Real Estate Information Corporation (NASDAQ:CRIC) and New Oriental Education Corp. (NYSE:EDU) are closest to theoretical lows with CRIC falling the fastest last week. But none of these stocks have REACHED theoretical lows, leaving more room to the downside.

Despite a significant fall, large cap CNOOC Ltd. (NYSE:CEO) and China Mobile (NYSE:CHL) aren't out of the woods yet.

JA Solar Holdings (NASDAQ:JASO) fell the hardest among solar stocks last week. The size of the fall suggests the decline was too much, too fast and a correction is possible.

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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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