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China stocks move off oversold position

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up September 28, 2011 (Chinavestor) Thanks to a sound comeback, prominent Chinese internet stocks moved away from extreme oversold position. Baidu.com Inc. (NASDAQ:BIDU), one of the most oversold China stocks on Tuesday, advanced 4.21%. Similarly to China's search engine giant, NetEase.com Inc. (NASDAQ:NTES) is not considered oversold thanks to a 5.48% rise. Even better, Sina Corp. (NASDAQ:SINA) is completely gone from the oversold screen after a 5.82 rise. China Southern Airlines (NYSE:ZNH) surged 8.05% and is gone from the oversold screen as well. There is not much to report as far as the overbought end of the China stock universe is concerned.

Small cap, low volume China Precision Steel (NASDAQ:CPSL) is on top of the oversold list today. But that shouldn't take away focus from interent stocks that offer the most upside. The good news is that large Chinese stocks from the technology sector may have bottomed out. Baidu.com Inc. (NASDAQ:BIDU), China's largest search engine company, has more upside potential than downside risk at the moment.

Another oversold stock from yesterday, NetEase.com Inc. (NASDAQ:NTES), is looking good on Wednesday. There is no stock specific news responsible for the advance on Tuesday. Investors bought Chinese technology stocks on valuation. Related article: Sector rotation hurts technology favors health care

China's second most visited website, Sina Corp. (NASDAQ:SINA), is off the oversold chart as well. The stock went from a $110 a share company  to $80 a share in just three days. But similarly to the rest of the technology sector, the stock bounced back and is looking good on valuation.

Another big change from yesterday is the disappearance of China Southern Airlines (NYSE:ZNH) from the oversold screen. The stock was one of the bast among all Chinese stocks on Tuesday. Based on Asia trading before the NYSE open, more upside is possible for the stock.

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Despite a broad rally among U.S. listed Chinese stocks, there isn't much to see on the overbought screen yet. No China stock is overbought to the extremes, a position that would help investors to sort out what's the most likely scenario to happen.

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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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