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Melco and other momentum stocks

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advance_11 July 1, 2011 (Chinavestor) China Mobile (NYSE:CHL) may be the most overbought China play at the moment, but that's still due to the surge when the stock went from $44.6 to over $47 last week. Trading stock Melco Crown Entertainment (NASDAQ:MPEL) hasn't reached theoretical highs yet, but the stretch seems to be excessive. China Telecom (NYSE:CHA) is another stocks with momentum along with Sinopec (NYSE:SNP). Volatility remains high for China Automotive Systems (NASDAQ:CAAS).

Chinese telecoms come handy when investors fled to safety, as was the case last week while the Greek turmoil roiled markets. But their attractiveness is loosing shine as risk appetite is back. China Mobile (NYSE:CHL) is actually considered overbought and has more downside risk than upside potential. Don't expect much upside from China Telecom (NYSE:CHA) either.

Melco Crown Entertainment (NASDAQ:MPEL) rose almost 20% this week and is considered overbought. Not that is has reached theoretical highs but rather the stretch seems to be too much, too fast.

Asia's largest refiner, Sinopec (NYSE:SNP) is a stock with sound momentum. Despite sizable gains, more upside is possible, according to the overbought indicator.

China Automotive Systems (NASDAQ:CAAS) gave back all its previous gains this week and is back to square one. There Is no indication where the stock is going to go from here.

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There hasn't been any changes on the oversold end of the China stock universe. Small caps have been under pressure, a fact that is not about to change anytime soon.

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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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