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China stocks offer additional upside in Sept.

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advance5 September 1, 2011 (Chinavestor) Low volume China Natural Resources (NASDAQ:CHNR) and Agria Corp. (NYSE:GRO) became obviously overbought. But upside is not limited by technicals for Fushi Copperweld (NASDAQ:FSIN), China Unicom (NYSE:CHU), China Fire & Security (NASDAQ:CFSG) and Home Inns & Hotels Management (NASDAQ:HMIN). But China Mobile (NYSE:CHL) and Spreadtrum Communications (NASDAQ:SPRD) has lost momentum. China stocks on the oversold end have been trading in a narrow range lately with ChinaCast Education (NASDAQ:CAST) sticking out of the crowd.

But most of the action is taking place on the overbought screen today. Technical indicators are not as reliable for stocks that are either low cap or have low trading volume. Unfortunately for the indicator, China Natural Resources (NASDAQ:CHNR) and Agria Corp. (NYSE:GRO) have both of these. While they may seem overbought on the indicator, it's hard to tell where these stocks are going to be two days from now.

Stocks on the move include Fushi Copperweld (NASDAQ:FSIN) and China Unicom (NYSE:CHU) from Wednesday. Despite a noticeable advance over the week, none of them are considered overbought. In fact, the rally of China Unicom (NYSE:CHCU) is driven by strong fundamentals, something that may be able to keep the stock higher.

More upside looks possible for China Fire & Security (NASDAQ:CFSG) and Home Inns & Hotels Management (NASDAQ:HMIN) as well. While these stocks have lost some of their shine on Wednesday, that may be just a temporary break. Home Inns & Hotels Management (NASDAQ:HMIN) remains a solid company with sufficient trading volume, something investors like.

While not overbought, short term upside potential looks limited to China Mobile (NYSE:CHL) and Spreadtrum Communications (NASDAQ:SPRD). China's largest mobile carrier, China Mobile (NYSE:CHL), was the best Chinese telecommunications stock in August but lost momentum after China Unicom (NYSE:CHU) reported robust 3G subscriber growth.Upside is possible for both telcos though China Telecom (NYSE:CHL) has been trading in a much narrower range lately.

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There are no oversold China stocks at the moment. ChinaCast Education (NASDAQ:CAST)has been on a slide since the middle of August but is not oversold to the extremes. The stock is still far from theoretical lows, leaving plenty of room to the downside at the moment.

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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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