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China stocks with upside potential for July

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thumbs_up July 5, 2011 (Chinavestor) Two Chinese stocks are considered overbought today: China Mobile (NYSE:CHL) and Melco Crown Entertainment (NASDAQ:MPEL). Not on the screen but noticed is Spreadtrum Communications (NASDAQ:SPRD) for its 28.5% advance last week. The overbought monitor picked up the unusual advance of large cap stocks as well. Short term upside looks limited to Guangshen Railway (NYSE:GSH), China Petroleum & Chemical Corp. (NYSE:SNP) and China Telecom (NYSE:CHA). SouFun Holdings (NASDAQ:SFUN) is similar to Home Inns & Hotels Management (NASDAQ:HMIN) from a technical point of view while Qihoo 360 Technology (NYSE:QIHU) is showing some noticeable momentum as well.

China Mobile (NYSE:CHL) has reached theoretical highs and is ready to take a breather. The overbought indicator suggests that Melco Crown Entertainment (NASDAQ:MPEL) advanced too fast, too much as well. This implies downside risk exceeds upside potential for the stock.

Spreadtrum Communications (NASDAQ:SPRD) jumped 28.5% last week after Muddy Waters retreated from previous allegations, leaving the door open for the company to prove it wrong. Some argue that the shorts freak to cover their positions, potentially catapulting stocks like China Green Agriculture (NYSE:CGA) or Telestone Technologies (NASDAQ:TSTC). Time will tell if those theories are true...

Guangshen Railway (NYSE:GSH) is a solid, safe stock that has move upwards. But upside potential looks now limited for the unusually large advance lately.

Smae is true for China Petroleum & Chemical Corp. (NYSE:SNP), according to the overbought monitor below.

China Telecom (NYSE:CHA) has solid momentum and has more upside than China Mobile (NYSE:CHL).  But as investors embrace risk, telecoms fell out of favor.

SouFun Holdings (NASDAQ:SFUN) is now trading within its trading range after spending most of July under it... More upside is certainly within the cards.

Home Inns & Hotels Management (NASDAQ:HMIN) is gaining strength as the earings season approaches. More upside is possible for this explosive NASDAQ play.

Qihoo 360 Technology (NYSE:QIHU) rose 16.7% just in the past three days. Despite the sizable jump, the stock is far from overbought at this point. More upside is possible according to the overbought chart below.

OB_201175

There is not much of interest on the oversold end of the China stock universe today. None of the Chinese ADRs we follow have reached theoretical lows, rendering the indicator not much of a value for momentum stock investors.

OS_201175

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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