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China stock extremes for May 2, 2011

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questionmark May 2, 2011 (Chinavestor) China Techfaith Wireless (NASDAQ:CNTF) is the most striking China stock on the overbought monitor, but the technical tool finds additional notable stocks. Despite sound gains, Melco Crown Entertainment (NASDAQ:MPEL) is looking good, just like Sohu.com Inc. (NASDAQ:SOHU). Downside risk for China Unicom (NYSE:CHU) is more elevated, similarly to WuXi Pharatech (NYSE:WX). Stocks of interest on the oversold screen include China Bak Battery (NASDAQ:CBAK), China Life Insurance (NYSE:LFC), Huaneng Power International (NYSE:HNP), and 51 job Inc. (NASDAQ:JOBS).

Back to the overbought screen. China Techfaith Wireless (NASDAQ:CNTF)is clearly overbought, rising 15% in the past two weeks. The advance is clearly too much, too fast - a short term correction is the most likely scenario.

Melco Crown Entertainment (NASDAQ:MPEL) and Sohu.com Inc. (NASDAQ:SOHU) have ample volume and are trading far from theoretical highs.This in turn leave open the door for more upside.

China Unicom (NYSE:CHU) has been trading in a narrower range with no clear indication of more short term upside. The stock looking similar to CHU is WuXi Pharmatech (NYSE:WX).

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China Bak Battery (NASDAQ:CBAK) is trading closest to theoretical lows but that doesn't mean this stock is poised to turn around immediately. 51job Inc. (NASDAQ:JOBS) is trading the closest to that point among larger, highly liquid Chinese stocks. This in turn sugfgests downside risk for 51job Inc. (NASDAQ:JOBS) is small.

Despite recent losses, the slide may not be over for China Life Insurance (NYSE:LFC). The problem for the company is a weak 2011 Q1 where net income fell from last year. When fundamentals are behind a slide of a liquid stock, it usually takes time before the company gets off the ground.

There is a different story with Huaneng Power International (NYSE:HNP) although it looks similar to LFC. from a technical point of view. Fundamentals are fast changing here depending on the price of coal. Right now there is a high chance of a bounce back up as May dawned on us.

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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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