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Oversold stocks offer upside

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banace_4 August 3, 2011 (Chinavestor) There are no overbought China stocks at the moment while the oversold screen is full of action. Investors bought China BAK Battery (NASDAQ:CBAK) before earnings release but is off 12% pre-market and is expected to move off the overbought screen. Yanzhou Coal mining (NYSE:YZC) and Wuxi Pharmatech (NYSE:WX) are oversold and are expected to bottom out or pop. Stocks with the most significant decline include Shanda Interactive (NASDAQ:SNDA) and its online game arm, Shanda Games (NASDAQ:GAME). Guangshen Railway (NYSE:GSH) is another large cap stock ready to bounce back up, according to the oversold screen. Chindex International (NASDAQ:CHDX) fell hard and might come off lows as well.

Back to the overbought screen. China Green Agriculture (NYSE:CGA) and China eastern Airlines (NYSE:CEA) fell hard on Tuesday, erasing all previous gains on the overbought screen. China BAK Battery (NASDAQ:CBAK) had momentum going into earnings but that ll changed last night after the company revealed its latest financials.

OB_201183

Most of the action is happening on the oversold screen today. China's third largest coal miner, Yanzhou Coal Mining Co. (NYSE:YZC), is oversold and is expected to bounce back up or bottom out as a minimum.

Same is true for Wuxi Pharmatech (NYSE:WX). Both stocks are oversold according to the chart below.

Strong earnings failed to lift Sohu.com Inc. (NASDAQ:SOHU) and Ctrip.com Int. (NASDAQ:CTRP) this week, hurting outlook for less prudent Shanda Interactive (NASDAQ:SNDA) and its online game arm, Shanda Games (NASDAQ:GAME). Both Shandas fell hard but hasn't reached theoretical lows yet. more downside is possible.

Guangshen Railway (NYSE:GSH) fell hard but may bottom out. Large cap stocks don't get oversold to extremes all that often, making a case for a comeback for GSH more viable.

The oversold screen works best for liquid, larger cap stocks than Chindex International (NASDAQ:CHDX). The indicator suggests mosre downside is possible for CHDX despite recent weakness.

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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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