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Oversold stocks bounce back, March 17

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advance3 March 17, 2011 (Chinavestor) Other than some solar stocks like Trina Solar (NYSE:TSL) and LDK Solar (NYSE:LDK), there is not much to find on the overbought monitor today. This is a complete opposite from the oversold monitor where stock extremes are found left and right. Shanda Games (NASDAQ:GAME), one of the best internet stocks weathering the storm, succumbed to selling pressure and went from the overbought screen to the oversold one. Oversold stock extremes to watch on Thursday include Melco Crown Entertainment (NASDAQ:MPEL), Fushi Copperweld (NASDAQ:FSIN), China Green Agriculture (NYSE:CGA) and 51job Inc. (NASDAQ:JOBS). These stocks have large volume and are well positioned to bounce back once market sentiment improves. But China Integrated Energy (NASDAQ:CBEH) fell on weak earnings, a fundamental challenge that will keep the stock price subdued if history can serve as a guide.

Chinese solar stocks got a boost from the Japanese nuclear crisis, as the overbought monitor testifies. Despite some advance, Trina Solar (NYSE:TSL) and LDK Solar (NYSE:LDK) are far from overbought.

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Oversold stock extremes are led by Melco Crown Entertainment (NASDAQ:MPEL) and is followed closely by Fushi Copperweld (NASDAQ:FSIN). Both stocks fell hard all the way to theoretical lows. This in turn suggests downside is limited from here.

China Green Agriculture (NYSE:CGA) has been resilient at $7 in the past and should market sentiment improve, CGA offers a turnaround opportunity.

Another stock offering trading opportunity is 51job Inc. (NASDAQ:JOBS). The stock was one of the best performing one in 2010 returning over 200%. Earnings came out all right but the stock fell hard lately, something that savvy investors have to consider.

This is different from China Integrated Energy (NASDAQ:CBEH), a bio-diesel producer and distributor, that fell 18% lately on disappointing earnings. When fundamentals hurt, stocks stay oversold for a longer time.

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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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