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Buy oversold China stock extremes

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warning1 May 6, 2011 (Chinavestor) SouFun Holdings (NASDAQ:SFUN) may be trading the closest to theoretical highs but its the oversold screen that presents the most China stock extremes. The free fall in commodity prices triggered a heavy sell-off of energy stocks, sending China Petroleum & Chemical Corp. (NYSE:SNP) and Petrochina Co. Ltd. (NYSE:PTR) tumbling. But Aluminum Corp. of China (NYSE:ACH) is just as oversold as Chinese oil majors. The 8.0% drop in the price of silver left Silvercorp Metals (NYSE:SVM) diving 24% in the last four days! Chindex International (NASDAQ:CHDX) fell hard along with China Life Insurance (NYSE:LFC), something that's out of ordinary according to the oversold chart.

Back to the overbought end of the China stock universe. SouFun Holdings (NASDAQ:SFUN) is one of those Chinese internet stocks that advanced on the back of Renren's (NYSE:RENN) IPO. Despite a 7.5% gain for the week, more upside is possible. The stock is far from being overbought, as the following chart reveals.

Advance for China TechFaith Wireless (NASDAQ:CNTF) and eLong Inc. (NASDAQ:LONG) may have been too fast.

OB_201156

The oversold end of the China stock universe is full of action. China Petroleum & Chemical Corp. (NYSE:SNP) and Petrochina Co. Ltd. (NYSE:PTR) fell hard and are ready to bounce back up. Price of the crude touched as low as $94 this morning, a significant drop from $112 just a week ago, before climbing back to just under $100. A technical correction for these oil majors is a real possibility.

Resource stock Aluminum Corp. of China (NYSE:ACH) and Silvercorp Metals (NYSE:SVM) tumbled as commodity prices dived. Both stocks are considered oversold and might bounce back up once metal prices stabilize.

Chindex International (NASDAQ:CHDX) is unusually oversold suggesting downside risk is minimal.

China Life Insurance (NYSE:LFC), a large cap China play, is also oversold considering the sharp fall of its stock price.

OS_201156

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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