May 16, 2011 (Chinavestor) When index futures point to a lower open, overbought and momentum stocks are in the most vulnerable position. China Cast Education (NASDAQ:CAST), 3SBio (NASDAQ:SSRX), Mindray Medical (NYSE:MR), China TechFaith Wireless (NASDAQ:CNTF) and Ata Inc. (NASDAQ:ATAI) are some of the most vulnerable China stock this morning.
Oversold stocks may offer turnaround opportunities, but other than LDK Solar (NYSE:LDK), none have reached theoretical lows yet. The oversold monitor picked up unusual drop in the price of Sutor Technologies (NASDAQ:SUTR), Sina Corp. (NASDAQ:SINA) and Cogo Group (NASDAQ:COGO).
Investors have to keep in mind that overbought is not necessarily bearish. It merely suggests that a stock has advanced too much, too fast and may take a breather. Similarly, oversold is not bullish. But the pace of decline is about to slow down or a stock may have hit bottom.
List of most oversold China stocks this morning.
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.