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China stocks nearing extremes

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warning1 July 12, 2011 (Chinavestor) The overbought and oversold monitors are about to change dramatically as stocks tumbled world wide. As predicted, China Mobile (NYSE:CHL) fell on Monday along with Melco Crown Entertainment (NASDAQ:MPEL) while China Southern Airlines (NYSE:ZNH) rose. Small cap China Sky One Medical (NASDAQ:CSKI) surged but became overbought, according to the chart below. But most of the action is going to take place on the oversold monitor. Large caps have started to experience a sell-off already as is evidenced by the list of the following names among the most oversold 25 Chinese stock names: Yanzhou Coal Mining (NYSE:YZC), Huaneng Power (NYSE:HNP), Aluminum Corp. of China (NYSE:ACH) or China Unicom (NYSE:CHU).  Small cap JA Solar (NASDAQ:JASO) has more downside left as well, despite recent tumble. Online gamer Shanda Interactive (NASDAQ:SNDA) and its online game unit, Shanda Games (NASDAQ:GAME) are also worth noticing on the oversold monitor.

But first, let's take a look at the most overbought China stock list. China Sky One Medical (NASDAQ:CSKI) surged just under 10% on Monday but hit theoretical highs and is in a vulnerable position.

China's largest mobile carrier, China Mobile (NYSE:CHL), fell off the cliff and has more downside left.

Trading stock Melco Crown Entertainment (NASDAQ:MPEL) is in a tight spot as well. While not overbought, momentum stocks are about to crumble should market sentiment remains deeply negative.

China Southern Airlines (NYSE:ZNH) was able to advance on lower oil prices but more upside is in question as global markets cool off.

OB_2011712

Chinese solar stocks lead the oversold monitor; Jinko Solar (NYSE:JKS) and JA Solar (NASDAQ:JASO) are among the most oversold Chinese stocks at this point. But despite their relatively oversold position, none of the mare oversold to the extremes leaving more room to the downside.

Large cap Yanzhou Coal Mining (NYSE:YZC), while not oversold to the extremes, is about to fall more. The significant presence of industry leaders among the most oversold Chinese stocks is alarming. Huaneng Power (NYSE:HNP) is the largest independent power generator in China. Aluminum Corp. of China (NYSE:ACH) is the largest maker of the metal in China and is the third largest world wide. China Unicom (NYSE:CHU) is the second largest mobile carrier in China and is also on the list below. When industry leaders fall, the rest continues...

The online game developer and operator arena is about to experience a cool off as well. Former number one Shanda Interactive (NASDAQ:SNDA) is on the list below, boding ill for the rest of the sector. Shanda Games (NASDAQ:GAME) is also on the list and while not oversold to the extremes yet, the picture is far from rosy.

OS_2011712

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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