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Careful with China stock extremes in March

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warning3 March 25, 2011 (Chinavestor) Sleepy Noah Education Holdings (NYSE:NED) may lead the overbought China screen but it's Sina Corp. (NASDAQ:SINA), Petrochina Co. Ltd. (NYSE:PTR), 51job Inc. (NASDAQ:JOBS) and Melco Crown Entertainment (NASDAQ:MPEL) that has a story. Baidu.com Inc. (NASDAQ:BIDU) and GigaMedia Limited (NASDAQ:GIGM) offer trading opportunities, according to the overbought chart, as well. The Chinese car parts sector remains under water along with some selected solar stocks like LDK Solar (NYSE:LDK), according to the oversold screen.

But most of the action is taking place on the overbought end of the China stock universe. Sina Corp. (NASDAQ:SINA) broke through the $100 mark - but is getting overbought, according to the chart below. The stock may take a breather from here.

Petrochina Co. Ltd. (NYSE:PTR), China's largest oil producer, reached 52 week highs and is overbought as well. The good news is that record oil prices will keep supporting the stock, as long as conflict in Libya drags on.

Downside risk exceeds upside potential for the short term for 51job Inc. (NASDAQ:JOBS) and Melco Crown Entertainment (NASDAQ:MPEL). Both these ADRs are excellent trading stocks but they might have stretched too thin. Profit taking is going to follow latest surge, according to the overbought chart.

Baidu.com Inc. (NASDAQ:BIDU) is a different story though. Despite recent gains, the stock is not overbought.

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Wonder Auto Technologies (NASDAQ:WATG) remains oversold. This implies the bottom is right here with more upside potential than downside risk. This might come handy for the rest of the sector; China Automotive Tech (NASDAQ:CAAS) and China XD Plastics (NASDAQ:CXDC) might bounce back up as well.

LDK Solar (NYSE:LDK) is oversold as well, a solid stock that offer value for the long term investor.

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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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