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Oversold energy stocks to lead rally

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advance9 May 9, 2011 (Chinavestor) SouFun Holdings (NASDAQ:SFUN) continues to trade closest to theoretical highs, but the stock is not considered overbought! Guangshen Railway (NYSE:GSH) stepped out of its trading range and thus is susceptible to a pull back. Stocks with strong momentum from last week include Feihe International (NYSE:ADY), Mindray Medical (NYSE:MR), and eLong Inc. (NASDAQ:LONG). Most interesting stocks on the oversold indicator this morning include China Natural Resources (NASDAQ:CHNR), Sinopec (NYSE:SNP) and oil major Petrochina Co. Ltd. (NYSE:PTR).

Despite a 12% surge in the last three trading days, SouFun Holdings (NASDAQ:SFUN) is not overbought. More upside is possible, according to the chart below.

Unusual move by Guangshen Railway (NYSE:GSH) calls for attention though. Large cap, HKEx cross-listed Chinese stocks don't get overbought to the extremes. This suggests GSH is up to a short term correction on Monday.

The last hour of trading sent Feihe International (NYSE:ADY) 10% higher intraday. The good news is that large underlying volume accompanied the surge, indicating strong money flows! This is a good combination before the opening bell.

Mindray Medical (NYSE:MR) and eLong Inc. (NASDAQ:LONG) are looking good on the overbought screen below. Both stocks have advanced rapidly and the rally looks sustainable from a technical point of view.

OB_201159

China Natural Resources (NASDAQ:CHNR) is considered oversold albeit low volume renders the indicator less accurate. Energy stocks, Sinopec (NYSE:SNP) and Petrochina Co. Ltd. (NYSE:PTR) are considered oversold as well. Both stocks are expected to take advantage of the commodity bounce back over the weekend.

OS_201159

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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