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Earnings dominate China stocks in Q2

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play_1 August 17, 2011 (Chinavestor) Advanced Battery Technologies (NASDAQ:ABAT) remains the most overbought China stock despite a 5% pull back yesterday. Chinese airliners have got some momentum lately for both China Southern Airlines (NYSE:ZNH) and China Eastern Airlines (NYSE:CEA) made it to the overbought China stock list. China Fire & Security Group was able to hang on to gains since last Friday, quite an achievement given sour market conditions. General Steel (NYSE:GSI) surged following strong 2011 Q2 numbers and hasn't reached theoretical highs yet, a potentially good sign. Similarly to General Steel (NYSE:GSI), strong earnings propelled China XD Plastics (NASDAQ:CXDC) and Xinyuan Real Estate (NYSE:XIN) higher but both rallies seem to loose steam.

The rally may be over for Giant Interactive (NYSE:GA) as well for the stock advanced too much, too fast, according to the chart below. And while GA is overbought, Shanda Games (NASDAQ:GAME) and Changyou.com Inc. (NASDAQ:CYOU) fell all the way to the oversold chart. This implies there is no general strength in the sector...

Internet stocks have been trading in a narrow range ahead of earnings. NetEase.com Inc. (NASDAQ:NTES) and Qihoo Technologies (NYSE:QIHU) are going to report after the close on Wednesday.

Disappointing earnings sank China TechFaith Wireless (NASDAQ:CNTF) and Vanceinfo Technologies (NYSE:VIT). Global Sources Ltd. (NASDAQ:GSOL) fell had on no specific news yet and might bounce back up....

 

Back to the overbought screen. Advanced Battery Technologies (NASDAQ:ABAT) pulled back over 5%, a move that was expected after reaching an extreme overbought position Tuesday morning. There is no indication where the stock is going to go from here albeit downside risk remains high.

General Steel (NYSE:GSI) is screaming off the overbougt chart. The company reported sales increase of 100% YoY, sparking a rush. Volume increased 8 times over average on Tuesdayt, another excellent sign of technical srength. More upside is possible albeit downside risk is also on the rise.

Not overbought, China Southern Airlines (NYSE:ZNH) and China Eastern Airlines (NYSE:CEA) are also on the chart below. When price of oil goes low, airliners make more profit. Considering that none of these airliners are overbought, more upside is possible over the medium term.

Giant Interactive (NYSE:GA) went from the low end of its trading range all the way to over the high  end in the past eight trading sessions. But with no indication that the sector has strong money flows, downside risk remains high for this online gamer.

Investors sold off internet stocks on Tuesday along the market lines. NetEase.com Inc. (NASDAQ:NTES) and Qihoo Technologies (NYSE:QIHU) gave up some of earlier gains but have been holding on well before actual earnings. Both companies are scheduled to report after the close on Wednesday. Sina Corp. (NASDAQ:SINA) will report at the same time. What a bonanza for China internet stocks!

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Shanda Games (NASDAQ:GAME) and Changyou.com Inc. (NASDAQ:CYOU) are among the 25 most oversold China stocks, indicating the fundamental weakness of the sector. NetEase.com Inc. (NASDAQ:NTES) is going to report after the close, giving clues about the health of the sector.

And just how important earnings are, investors have to take a look at China TechFaith Wireless (NASDAQ:CNTF) or Vanceinfo Technologies (NYSE:VIT).Both stocks fell hard following the release of second quarter earnings on Tuesday. While both stocks look oversold, there is no chance for a quick rebound.

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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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