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China stock extremes bound to fall

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disappopint August 24, 2011 (Chinavestor) The advance of 6.8% in the past three days catapulted China Mobile (NYSE:CHL) to the top of  the overbought China stock chart. Downside risk exceeds upside potential for Advanced Battery (NASDAQ:ABAT) and Qihoo 360 Technology (NASDAQ:QIHU) as well. The new kid on the block is Perfect World (NASDAQ:PRWD) thanks to a 15% surge on Tuesday. China CX Plastics (NASDAQ:CXDC) is looking strong on the overbought chart, approaching the $5 resistance level. Spreadtrum Communications (NASDAQ:SPRD) and Chinese airliners, China Eastern Airline (NYSE:CEA) and China Southern Airlines (NYSE:ZNH) has elevated downside risk as well. The most dramatic change on the oversold end of the China stock universe is the disappearance of China Telecom (NYSE:CHA) and China Unicom (NYSE:CHU) from the chart. These two were among the most oversold ones as late as yesterday, but thanks to a strong quarterly earnings report, that's just history.

Back to the overbought chart. China Mobile (NYSE:CHL) looks to stranded too thin at this point. A technical correction is the most likely scenario today. But don't write this stock off completely for its fundamentals are solid and is not overbought to the extremes.

Strong earnings helped lift Advanced Battery (NASDAQ:ABAT) and Qihoo 360 Technology (NASDAQ:QIHU. But the rally has lost momentum for both and with trading close to theoretical highs, the most likely road is down from here.

China XD Plastics (NASDAQ:CXDC) surged after a record second quarter earnings report. But the stock's been fighting the $5 resistance level ever since with little success. But as more good news may come out of the company, upside looks not limited just yet.

Stocks stretching too thin include Spreadtrum Communications (NASDAQ:SPRD), China Eastern Airline (NYSE:CEA) and China Southern Airlines (NYSE:ZNH). Both companies have sound fundamentals but with volatile market environment, further upside for Wednesday looks unlikely.

OB_2011824

Acorn International (NYSE:ATV) is trading closest to theoretical lows but the stock isn't oversold to the extremes yet. Don't expect a quick turnaournd, investor. China Telecom (NYSE:CHA) reported sound top and bottom line growth. This helped move the stock off the oversold chart immediately. Sentiment dragged over to rival China Unicom (NYSE:CHU), another oversold stocks from yesterday. Both are off the chart as a result.

OS_2011824

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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