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China stock extremes, May 19

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bubble_2 May 19, 2011 (Chinavestor) The commodity led rally was enough for momentum stocks to extend their gains - Chinese airliners in particular. The good news is that neither China Eastern Airlines (NYSE:CEA) nor China Southern Airlines (NYSE:ZNH) are overbought. ChinaCast Education Corp. (NASDAQ:CAST) made a comeback but that's nothing compared to the latest rally of China Techfaith Wireless Comm. Tech. Ltd (NASDAQ:CNTF). Tencent Holdings (HKG:0700) and Expedia.com (NASDAQ:EXPE) invested into eLong Inc. (NASDAQ:LONG), spurring a 60% hike. The stock is obviously overbought but the price won't collapse for the fundamentals behind the surge. Besides Chinese solars, Cogo Group (NASDAQ:COGO) and Vanceinfo Technologies (NYSE:VIT) are stocks of interest on the oversold screen for today.

 

Lower oil prices helped China Eastern Airlines (NYSE:CEA) and China Southern Airlines (NYSE:ZNH) to regain some of earlier losses this year. Despite a 20 percent plus advance in the month, none of these airliners are considered overbought. It all comes down to the price of oil. Should the crude continue to pull back, expect Chinese airliners shine even more.

ChinaCast Education Corp. (NASDAQ:CAST) is looking good on the overbought screen at the moment. The stock has just stepped above its trading range, leaving more room to the upside.

China Techfaith Wireless Comm. Tech. Ltd (NASDAQ:CNTF) went from a $4 stock to over $6.5 in just one month. The stock is considered overbought at this point, suggesting the advance will have to slow down. Downside risk exceeds upside potential for the short-term.

Rally of eLong Inc. (NASDAQ:LONG) looks more than sustainable at this point. Tencent Holdings (HKG:0700) and Expedia.com (NASDAQ:EXPE) invested into the company, suggesting current high stock price is here to stay - or get even higher!

OB_2011519

Other than oversold low volume stocks, investors should pay attention to stocks that move. Cogo Group (NASDAQ:COGO) fell apart on Tuesday and extended losses to Wednesday. But the fall looks excessive and the stock is considered oversold!

Vanceinfo Technologies (NYSE:VIT) is off 15% for the week with more downside risk prevailing!

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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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