April 5, 2011 (Chinavestor) The number of China stock extremes is on the rise according to the overbought chart below with Melco Crown Entertainment (NASDAQ:MPEL) is entering into a danger zone. UTStarcom (NASDAQ:UTSI) is just as vulnerable and China Telecom (NYSE:CHA) is about to slow down as well. Sohu.com Inc. (NASDAQ:SOHU) is making a run to the $100 level but has started to stretch too thin. Home Inns & Hotels Management (NASDAQ:HMIN) made a good run last Friday and has been able to hang on to gains on Monday. The stock is looking good on the overbought screen with more potential upside.
Taking a closer look at the overbought screen, oil companies are on top of the list - a no brainer. With oil topping $108/barrel, Petrochina Co. Ltd. (NYS:EPTR) and CNOOC Ltd. (NYSE:CEO) are on the roll.
But those gains are overshadowed by some trading stocks, like Melco Crown Entertainment (NASDAQ:MPEL). This highly volatile and liquid China play rose too much, too fast and might pull back, according to the overbought chart.
Downside risk exceeds upside potential for 51job Inc. (NASDAQ:JOBS) as well.
But Sohu.com Inc. (NASDAQ:SOHU) is looking better for it's trading far from theoretical highs. Yet the stock is out of its normal trading range, making it susceptible to profit taking.
Home Inns & Hotels Management (NASDAQ:HMIN) jumped 8% on Friday with heavy volume and is just about to break out from its trading envelope. This suggests more upside is possible for the stock.
Wonder Auto Technologies (NASDAQ:WATG) remains oversold but that's because of allegations of financial wrongdoings. That's similar to China Integrated Energy (NASDAQ:CBEH), a diesel oil distributor and bio-diesel producer. More downside is possible for both companies.
More downside is possible for WSP Holdings (NYSE:WH) and Synutra International (NASDAQ:SYUT) as well despite significant losses. None of these stocks have reached theoretical lows yet and have downside risk left.
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.