March 28, 2011 (Chinavestor) There are a couple of developing stories on the overbought screen that investors have to pay attention to. For one, GigaMedia Limited (NASDAQ:GIGM) has approached theoretical highs and became overbought. Sina Corp. (NASDAQ:SINA) is trading way above its trading range, a sign of vulnerability going forward. Sudden advance of City Telecom (NASDAQ:CTEL) and Melco Crown Entertainment (NASDAQ:MPEL) suggests downside risk is on the rise for these stocks. But industry leader Petrochina Co. Ltd. (NYSE:PTR) from the NYSE looks good along with Huaneng Power International (NYSE:HNP). Despite steady stock price increases, search engine giant Baidu.com Inc. (NASDAQ:BIDU) looks to have more upside left, according to the overbought chart.
Stocks of interest on the oversold monitor include LDK Solar (NYSE:LDK) and Wonder Auto Technologies (NASDAQ:WATG), China Automotive Systems (NASDAQ:CAAS), and China XD Plastics (NASDAQ:CXDC) from the auto parts sector.
But the real stock extremes are to be found on the overbought screen on Monday. GigaMedia Limited (NASDAQ:GIGM) is screaming off the chart, suggesting the stock price increase will have to come to a stop sooner than later.
Sina Corp. (NASDAQ:SINA) is trading at all time highs and with the rapid advance lately, that advance is in question right now. The stock may take a breather before resuming the rally.
City Telecom (NASDAQ:CTEL), another highly liquid trading stock, is looking vulnerable as well. While long term outlook is good, pace of advance is about to slow down, according to the overbought monitor.
Similarly to City Telecom (NASDAQ:CTEL), downside risk exceeds upside potential for Melco Crown Entertainment (NASDAQ:MPEL).
High oil prices helped Petrochina Co. Ltd. (NYSE:PTR) to show strong momentum on the overbought screen. Huaneng Power International (NYSE:HNP) is similarly priced suggesting more upside looks possible, albeit these stocks are sensitive to energy price fluctuations.
Despite the letest gains, Baidu.com Inc. (NASDAQ:BIDU) is looking good from a technical point of view. The stock is trading above its trading envelope albeit not at extremes.
There are two stocks to avoid on the oversold screen this morning. China Architectural Engineering, Inc. (NASDAQ:CAEI) and Advanced Battery Technologies (NASDAQ:ABAT) are just flukes. But Wonder Auto Technology (NASDAQ:WATG) remains oversold - for a good reason. NASDAQ warned the company to comply with listing rules - providing financial information on time - else may gets booted. When fundamental news hurt stock prices, technical indicators are useless.
But China Automotive Systmes (NASDAQ:CAAS) and China XD Plastics (NASDAQ:CXDC) are off the oversold screen. Both these stocks got hurt on the sidelines of WATG - but rallied strongly on Friday. More upside is possible for these companies.
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.