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Careful with Chinese internet stocks in February

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online_game4 February 11, 2011 (Chinavestor) Despite a 10 percent plus jump on Thursday, NetEase.com Inc. (NASDAQ:NTES) isn't overbought yet. But Shanda Interactive (NASDAQ:SNDA) is in the danger zone according to the overbought chart. Baidu.com Inc. (NASDAQ:BIDU) and Sohu.com Inc. (NASDAQ:SOHU) has more upside left should market sentiment support a rally for the sector.

The most stock extremes are taking place on the oversold end of the China stock universe though. China Mobile (NYSE:CHL) is oversold just like CNOOC Ltd. (NYSE:CEO) and eLong Inc. (NASDAQ:LONG). While outlook for energy stocks are good, China's largest mobile operator may experience some "good sweating" before bouncing back up.

Chinese online game developer NetEase.com Inc. (NASDAQ:NTES) was the best performing Chinese ADR on Thursday after a 11.36% rise. The good news is that the stock hasn't reached theoretical highs yet. This is in sharp contrast to Shanda Interactive (NASDAQ:SNDA), a stock that is extremely vulnerable after a 9.5% advance.

Internet darling Sohu.com Inc. (NASDAQ:SOHU) is trading out of its trading range but is not considered overbought.

Baidu.com Inc. (NASDAQ:BIDU), the largest Chinese search engine, has been on the roll while keepingĀ  options open for additional upside, according to the overbought chart below.

OB_2011211

Large cap China Mobile (NYSE:CHL) has reached theoretical lows and fell hard. While the bounce back up is more than just a possibility, Friday may see more weakness due to market sentiment. But that's about to chance next week, according to the oversold chart below.

Bounce back up looks imminent for CNOOC Ltd. (NYSE:CEO), China's offshore oil specliast. The company has reached theoretical lows while price of oil is on the rise again.

Small cap eLong Inc. (NASDAQ:LONG) may bounce back up any time but is not guaranteed.

OS_2011211

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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