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Oversold China stock list swamped

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forecast1 June 17, 2011 (Chinavestor) The oversold China stock monitor remains swamped while the overbought lacks action. Huaneng Power International (NYSE:HNP) fell over 10% for the month and has reached theoretical lows. Liquid Spreadtrum Communications (NASDAQ:SPRD) is ready for a comeback, along with internet darling Sina Corp. (NASDAQ:SINA). Baidu.com Inc. (NASDAQ:BIDU) is oversold as well though to a lesser extent than SINA. Another industry leader, New Oriental Education & Tech Group (NYSE:EDU), is ready for a comeback along with HSBC Plc. (NYSE:HBC), a Hang Seng Index (INDEXHANGSENG:.HSI) heavy weight. The following three online gamers are among the 25 most oversold China stocks: Perfect World (NASDAQ:PWRD), Giant Interactive (NYSE:GA) and Shanda Interactive (NASDAQ:SNDA). This spells trouble for the sector, at least for the next few days.

Back to the chart. Four stocks have reached theoretical lows and are ready for a comeback this morning. But there is some notable difference among them. For one, Huaneng Power Int. (NYSE:HNP) is a large cap China play whose home market is Hong Kong. This gives that investors have to look into the HKEx for clues for direction. This implies that upside is limited for Huaneng Power (NYSE:HNP) for the time being.

But things are different for Spreadtrum Communications (NASDAQ:SPRD). This stock is very liquid and will react instantly to market sentiment. All this stock needs is a strong market day!

This situation is similar to that of Sina Corp. (NASDAQ:SINA) albeit to a lesser degree. Sina Corp. (NASDAQ:SINA) is less explosive though is just as oversold as Spreadtrum Comm. (NASDAQ:SPRD). Beta, a measure of volatility, is significantly lower for Sina Corp. (NASDAQ:SINA) as one would expect.

Baidu.com Inc. (NASDAQ:BIDU), the largest Chinese internet stock by market cap, is unusually oversold. The stock hasn't reached theoretical lows yet but that should not be a surprise. Large, liquid stocks like BIDU rarely touch overbought or oversold extremes. Given stock characteristics, BIDU is considered oversold with significant upside potential.

New Oriental Education & Tech Group (NYSE:EDU), the largest Chinese stock in the U.S. from the education sphere, is oversold.

Technical reading is very similar to HSBC Plc. (NYSE:HBC), one of the largest components of the Hang Seng Index (INDEXHANGSENG:.HSI). Upside potential exceeds downside risk for both stocks at the moment.

Perfect World (NASDAQ:PWRD) fell the hardest lately and has caught up with the rest of the sector, according to the chart below. Giant Interactive (NYSE:GA) and Shanda Interactive (NASDAQ:SNDA) have been on the oversold chart for most of the week with PWRD joining the club. The large representation of the sector among the most oversold stocks spells trouble for the sector.

OS_2011617

There is no change on the overbought end of the China stock universe from yesterday.

OB_2011617

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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