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Solar sector getting oversold

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solar_5 September 9, 2011 (Chinavestor) Harbin Electric (NASDAQ:HRBN) is overbought but Spreadtrum Communications (NASDAQ:SPRD), Gushan Env. Energy (NYSE:GU) and China Fire & Security (NASDAQ:CFSG) are also in the danger zone. Advance of China Unicom (NYSE:CHU) has slowed down to a manageable level, giving this company and China Mobile (NYSE:CHL) a chance to shine on Friday. There are no oversold China stocks extremes at the moment but five solar companies among the 25 most oversold stocks is showing the weakness the sector is experiencing. Trina Solar (NYSE:TSL) fell the hardest from the sector followed by Yingli Green Energy (NYSE:YGE), but more downside is possible.Jinko Solar (NYSE:JKS) is also a stock of interest based on technicals. But there is plenty of room left to the downside for Rene Sola (NYSE:SOL) or Canadian Solar (NASDAQ:CSIQ) at this point. Back to the overbought screen. Harbin Electric (NASDAQ:HRBN) has reached theoretical highs after a 4.09% advance yesterday and is ready to take a breather. Investors have to keep in mind that overbought is not necessarily bearish. It just implies that the stock advanced too fast, too much and is subject to a short term correction.

Downside risk exceeds upside potential for Spreadtrum Communications (NASDAQ:SPRD) and Gushan Environmental Energy (NYSE:GU) as well. China Fire & Security Group (NASDAQ:CFSG) is looking better from a technical point of view.

China Unicom (NYSE:CHU) is not overbought thanks to a beeather yesterday. More upside is clearly possible for China's number 2 mobile operator. China Mobile (NYSE:CHL) is looking more neutral with a positive bias.

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Jinko Solar (NYSE:JKS) is trading closest to theoretical lows but is not considered oversold yet. Trina Solar (NYSE:TSL) fell the hardest in relative terms lately but is not oversold either. The large number of solar stocks on the list implies the sector is getting oversold, but more downside is still possible for individual stocks. Canadian Solar (NASDAQ:CSIQ), Rene Sola Ltd. (NYSE:SOL) and JA Solar (NASDAQ:JASO) are among the 25 most oversold China stocks but are not really oversold to the extremes. This suggests more downside is possible at this point.

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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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