June 13, 2011 (Chinavestor) If anybody had any doubt about the severity of the sell-off that hit Chinese stocks last week, one should take a look a the latest oversold and overbought monitor. Respected industry leaders, Sina Corp. (NASDAQ:SINA), Huaneng Power (NYSE:HNP), New Oriental Education & Tech. Group (NYSE:EDU), or number two Shanda Interactive (NASDAQ:SNDA) are all oversold to the extremes. Jinko solar (NYSE:JKS) is here to testify that weakness is not limited to just one sector.
Sina Corp. (NASDAQ:SINA) fell under $90 a share last week, a level not seen for over three months. The pace of the decline suggests the stock is oversold and is ready for a comeback.
Huaneng Power Int. (NYSE:HNP) is China's largest independent power producer and is just as oversold, according to the chart below. High oil/coal prices and unwillingness of Chinese policy makers to raise power tariffs contributed to HNP's demise.
Technical weakness of New Oreintal Education & Tech. Group (NYSE:EDU), by far the largest listed Chinese company from the education sphere, spells troulbe for the entire sector. The stock is oversold and might bounce back up, should market sentiment improve.
China's second largest online game developer and operator, Shanda Interactive (NASDAQ:SNDA), is oversold though not to the extremes yet. The stock fell hard following lack of investor interest after a dismal 2011 first quarter. Hot Chinese IPOs of RENN, YOKU, or QIHU dried up liquidity for less sexy names.
Solar stocks continue to suffer as is testified by the weakness of Jinko Solar (NYSE:JKS). When price of oil heads south, solar stocks continue to feel pressure, as is the case this morning. Don't bet on a quick recovery for Jinko Solar (NYSE:JKS) just yet.
There are hard to find China stocks with momentum this morning, let alone overbought ones. The overbought chart below thus contains little useful information for traders Monday 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.