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China stock extremes for March 8

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watch_5 March 8, 2011 (Chinavestor) Shanda Games (NASDAQ:GAME) is ready to head north again but investors have to exercise caution with China Fire & Security Group, Inc. (NASDAQ:CFSG) after the 20% jump on Monday. KongZhong Corporation (NASDAQ:KONG) pulled back as expected but remains in the danger zone, according to the overbought chart. The number of oversold stocks is on the rise after VisionChina Media Inc (NASDAQ:VISN), China Digital TV Holding Co., Ltd. (NYSE:STV) and Vanceinfo Technologies (NYSE:VIT) have all approached theoretical lows.

But investors have to consider that low volume renders technical indicators much less useful, hurting the accuracy for Noah Education Holdings Ltd. (NYSE:NED) and China Edu Corp. (NASDAQ:CEDU).

Back to the overbought screen. China Fire & Security Group, Inc. (NASDAQ:CFSG)  is screaming on the overbought chart below. The stock not only surged over 20%, a highly unusual move to the stock, but have approached theoretical highs as well. This in turn suggests downside risk now exceeds upside potential for the company.

But this is not the case for Shanda Games (NASDAQ:GAME) anymore, a stock similar to CFSG last week. After giving back some of its gains, the stock is ready to rumble again, according to the overbought chart.

KongZhong Corporation (NASDAQ:KONG)leveled off in the past few days following the big surge last week. More upside is possible from here as the following chart testifies.

OB_201138

3sBio Inc. (NASDAQ:SSRX) remains the most oversold stock but VisionChina Media Inc (NASDAQ:VISN), China Digital TV Holding Co., Ltd. (NYSE:STV) and Vanceinfo Technologies (NYSE:VIT) are also trading at extremes. While VisionChina Media Inc (NASDAQ:VISN) seems to be stuck in a legal quagmire, China Digital TV Holding Co., Ltd. (NYSE:STV) has a chance to bounce back up. Vanceinfo Technologies (NYSE:VIT) suffered heavily on Monday after an analyst downgrade. This company enjoyed a tremendous run-up in 2009-2010 and thus is susceptible to correction.

OS_201138

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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