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Careful with overbought solar stocks in February

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watch_out Februar 16, 2011 (Chinavestor) Chinese solar stocks are clearly on the roll as the following overbought chart testifies. Downside risk exceed upside potential for Suntech Power (NYSE:STP) and JA Solar Holding (NASDAQ:JASO) but Ying li Green Energy (NYSE:YGE), Trina Solar (NYSE:TSL) and China Sunergy (NASDAQ:CSUN) have more upside left, according to the chart below.

Giant Interactive (NYSE:GA) and NetEase.com Inc. (NASDAQ:NTES) have the most momentum among Chinese online game developers. Vanceinfo Technologies (NYSE:VIT) and Sutor Technology (NASDAQ:SUTR) are stocks of interest on the oversold monitor this morning. Chinese solar stocks have enjoyed a resurgence in February as earnings season looms. Yingli Green Energy (NYSE:YGE) is gong to report on Friday with more solar stocks to follow in February. See Earnings calendar for the week. Solar sector took a hit late last year after a Citi sector downgrade on overcapacity, but those fears seem overblown.

While fundamentals may be right for the sector, the advance of Suntech Power (NYSE:STP) and JA Solar Holding (NASDAQ:JASO) call for attention. These stocks have rallied too much, too fast, limiting their short term upside. But Trina Solar (NYSE:TSL) and China Sunergy (NASDAQ:CSUN) are looking good on the overbought chart below.

The stock rotation within the online game sector continues. Shanda Interactive (NASDAQ:SNDA) ran its course last week and now it's Giant Interactive (NYSE:GA) that popped. Industry leader NetEase.com Inc. (NASDAQ:NTES) continues to show momentum.

OB_2011216

With most action taking place on the overbought end of the China stock universe, there is only Vanceinfo Technologies (NYSE:VIT) and Sutor Technology (NASDAQ:SUTR)that are looking interesting on the oversold chart below. Both stocks fell hard yet more downside is possible, according to the oversold chart.

OS_2011216

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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