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Vulnerable China stocks, Sept. 12

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banace_4 September 12, 2011 (Chinavestor) The most vulnerable China stocks are those that have reached theoretical highs and/or have advanced too fast, too much in the last two weeks. Harbin Electric (NASDAQ:HRBN), Gushan Environmental Energy (NYSE:GU) and Spreadtrum Communications (NASDAQ:SPRD) are certainly overbought. But the list doesn't stop here. Downside risk exceeds upside potential for China Green Agriculture (NYSE:CGA), China Fire & Security Group (NASDAQ:CFSG), Agria Corp. (NYSE:GRO) and Sutor Technology (NASDAQ:SURT) as well. Trina Solar (NYSE:TSL) and Yingli Green Energy (NYSE:YGE) fell hard last week according to the oversold monitor, but more downside is likely for both.

Back to the overbought monitor. Overbought stocks are ready to take a breather from a technical point of view. And when the market itself is falling apart, overbought stocks are certain to fall. That said outlook is dim for Harbin Electric (NASDAQ:HRBN), Gushan Environmental Energy (NYSE:GU) and Spreadtrum Communications (NASDAQ:SPRD). These stocks have approached theoretical highs and are ready for a correction.

China Green Agriculture (NYSE:CGA) surged 12% last Friday after beating expectatins, but that rally may come to an end sooner that expected. While the stock isn't overbought to the extremes, it is unlikely that CGA will be able to fight the market.

Stocks with relative strength from last week include China Fire & Security Group (NASDAQ:CFSG), Agria Corp. (NYSE:GRO) and Sutor Technology (NASDAQ:SURT). These stocks are trading above their trading envelope and are subject to a correction.

OB_2011912

Chinese solar stocks continue to suffer. Trina Solar (NYSE:TSL) and Yingli Green Energy (NYSE:YGE) fell the fastest last week, according to the oversold monitor. There is plenty of room left to the downside according to the chart below.

OS_2011912

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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