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China stocks at extremes, Aug. 29

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watch_4 August 29, 2011 (Chinavestor) China Infrastructure Investment Corp (NASDAQ:CIIC) and China Natural Resources (NASDAQ:CHNR) are among the most overbought China stocks at the moment. But investors prefer stocks with volume and momentum, like Perfect World Co. (NASDAQ:PWRD) and Spreadtrum Communications (NASDAQ:SPRD). China Southern Airlines (NYSE:ZNH) and China Mobile (NYSE:CHL) have been trading in a narrow range and are ready to break out. Excitement is over for General Steel (NYSE:GSI) and China XD Plastics (NASDAQ:CXDC), some of the most impressive China stocks from last week. Stocks with volume and an oversold position offer turnaround opportunities, such as Changyou.com Inc. (NASDAQ:CYOU) and trading stock Melco Crown Entertainment (NASDAQ:MPEL).

Investors looking for stock extremes may find China Infrastructure Investment Corp (NASDAQ:CIIC) and China Natural Resources (NASDAQ:CHNR) overbought, but their low volume renders them useless for trading purposes. Instead, Perfect World Co. (NASDAQ:PWRD) and Spreadtrum Communications (NASDAQ:SPRD) are promising stocks today. Both have sound fundamentals and sufficient trading volume.

Large cap China Southern Airlines (NYSE:ZNH) and smaller rival China Eastern Airlines (NYSE:CEA) are ready to resume go higher. Both stocks have plenty of upside left, according to the overbought screen.

China Mobile (NYSE:CHL) has been the best Chinese telco but that might change after China Unicom (NYSE:CHU) reported a much improved quarterly report. China Mobile (NYSE:CHL) looks neutral from a technical point of view, with a positive bias.

Not all reverse merger China stocks are bad, proved General Steel (NYSE:GSI) and China XD Plastics (NASDAQ:CXDC). Both reported much better revenues and earnings than the Street expected. But both are under the radar for most investors and their trading volume is low, limiting upside potential.

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Oversold China stocks with upside potential include Changyou.com Inc. (NASDAQ:CYOU) and Melco Crown Entertainment (NASDAQ:MPEL).Changyou.com Inc. (NASDAQ:CYOU) is simply oversold and is trading close to theoretical lows. Chances are that it will make a nice comeback.

Trading stock Melco Crown Entertainment (NASDAQ:MPEL) is trading at the low end of its trading envelope. This stock is poised to do well when the market is doing good. Monday can be a potentially good day for the stock.

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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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