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Oversold stocks for bottom fishing

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bottom_fishing_1 May 5, 2011 (Chinavestor) China stocks in danger include eLong Inc. (NASDAQ:LONG) and Guangshen Railway (NYSE:GSH) this morning. Some small caps are also showing unusual momentum, according to the overbought chart below. But most of the action is taking place on the oversold end of the China stock universe. Aluminum Corp. of China (NYSE:ACH) and Sinopec (NYSE:SNP) are oversold and ready to bounce back up. The fall looks too much for Simcere Pharma (NYSE:SVR) and 51job Inc. (NASDAQ:JOBS), as well as for Silvercorp Metals (NYSE:SVM).

Looking at the overbought chart below, two stocks have approached theoretical highs and are prone to a pull back. eLong Inc. (NASDAQ:LONG) advanced 20% in the last five trading days and that's highly unusual for the stock.

Downside risk exceeds upside potential for Guangshen Railways Co. Ltd. (NYSE:GSH) as well. Large cap Chinese stocks don't usually get overbought all to the extremes, suggesting GSH is going to give back gains on Thursday.

OB_201155

The oversold end of the China stock list is full of extremes today. Aluminum Corp. of China (NYSE:ACH) and Sinopec (NYSE:SNP) have not only fell unusually hard but have reached theoretical lows in addition. Both stocks look oversold and are expected to make a correction.

Stocks with a chance to pop inclide Simcere Pharma (NYSE:SVR) and 51job Inc. (NASDAQ:JOBS).

Silvercorp Metals (NYSE:SVM) fell hard following the collapse of silver prices earlier the month. But the fall looks excessive and the stock is expected to halt the decline.

OS_201155

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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