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Momentum stocks in danger, March 10

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decline March 10, 2011 (Chinavestor) As the DJIA was trading sideways, the number of Chinese stocks trading at extremes fell. Most overbought stocks pulled back, including Shanda Games (NASDAQ:GAME), and China Fire & Security Group, Inc. (NASDAQ:CFSG). But yesterday's loss may be the precursor of more advance for fundamentally sound companies like these. Home Inns & Hotels Management (NASDAQ:HMIN) moved noticeably higher but is far from being overbought.

Zhongpin Inc. (NASDAQ:HOGS) slid for three days in a row and became oversold. Agria Corp. (NYSE:GRO) and The9 Ltd. (NASDAQ:NCTY) are additional new stocks on the oversold chart this morning. A-Power Energy Generation Systems, Ltd. (NASDAQ:APWR) is another stock with a sudden decline the oversold chart picked up. Noah Education Holding (NYSE:NED) is on the top of the overbought chart today but that's misleading. Low volume stocks tend to trick the indicator as is the case here.

Kong ZhongCorp. (NASDAQ:KONG) is looking good on the overbought monitor this morning.

Shanda Games (NASDAQ:GAME) and China Fire & Security Group, Inc. (NASDAQ:CFSG) have pulled back on Wednesday, getting ready for more upside on Thursday. Overall market sentiment is gong to be key in determining where these stocks are going to go today.

Another stock with sustainable momentum is Home Inns & Hotels Management (NASDAQ:HMIN). The company reported sound fundamentals and excellent outlook, helping its shares break through the $40 level. More upside is possible, according to the overbought chart.

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Zhongpin Inc. (NASDAQ:HOGS) is closest to theoretical lows and may bounce back up on Thursday. But when fundamental news move the stock, technicals alone find it hard to fight the market.

Another stocks close to theoretical lows include Agria Corp. (NYSE:GRO) and The9 Ltd. (NASDAQ:NCTY). More downside is possible albeit is not necessary.

A-Power Energy Generation Systems, Ltd. (NASDAQ:APWR) fell over 10% on Wednesday, a highly unusual drop for the stock. A temporary leveling off is the most likely scenario but downside risk persists.

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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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