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Too much of a good thing ups downside risk

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worry_1 April 18, 2011 (Chinavestor) It may be large cap China Unicom (NYSE:CHU) that's been trading closest to theoretical highs, but it's small cap Focus Media Holdings (NASDAQ:FMCN), Noah Education (NYSE:NED), and WSP Holdings (NYSE:WH) that are the most vulnerable at the moment, according to the overbought chart. Melco Crown Entertainment (NASDAQ:MPEL), an excellent trading stock, has above average downside risk as well. The overbought monitor picked up the unusual uptick of Shanda Games (NASDAQ:GAME) and Giant Interactive (NYSE:GA) as well. Finally, the Chinese airliner sector isn't as vulnerable as many would think after significant increases last week. More upside is possible for both China Southern Airlines (NYSE:ZNH) and China Eastern Airlines (NYSE:CEA).

After the latest round of monthly subscriber growth reports, China Unicom (NYSE:CHU) is seen as the fastest growing major Chinese telco. Despite a sound performance for all of April, more upside is possible, according to the overbought chart.

 

When index futures point to a lower open, overstretched small cap stocks are especially vulnerable. This bodes ill for Focus Media Holdings (NASDAQ:FMCN), Noah Education (NYSE:NED), and WSP Holdings (NYSE:WH) by looking at the overbought chart below.

Melco Crown Entertainment (NASDAQ:MPEL) is trading way above its normal trading range, a negative development before a negative market day. Should market sentiment turn around, MPEL can surprise investors to the upside though!

Online game developer and operator Shanda Games (NASDAQ:GAME) was on the roll last Friday. Despite a significant move and a record price for 2011, the stock is NOT overbought.

Giant Interactive (NYSE:GA), the only NYSE listed company from the sector, rode on the back of GAME. But any momentum might swiftly evaporate should first quarter numbers disappoint.

Chinese airliners took a hit as price of oil went from $80 to over $105 a barrel. But investors have been pricking up both China Southern Airlines (NYSE:ZNH) and China Eastern Airlines (NYSE:CEA) on funda,mentals. Chinese aviation market has been expanding fast and both ZNH and CEA are seen as chips at bargain prices at the moment. More upside is possible.

OB_2011418

China TechFaith Wireless (NASDAQ:CNTF) and Xinyuan Real Estate (NYSE:XIN) are the most oversold Chinese stocks at the moment. Given that both China Vanke (SHE:200002) and Poly Real Estate (SHA:600048), the two largest property developers in China, advanced on Monday, XIN has a chance to shine.

OS_2011418

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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