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Technology yes, airliners not oversold

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bull_bear3 October 4, 2011 (Chinavestor) Investors know that oversold stocks can't fight the market. But when market sentiment improves, oversold stocks tend to be the first to claim back lost territory. After steep market declines, there is not much to see on the overbought chart today. Instead, Chinese technology stocks remain oversold. Sina Corp. (NASDAQ:SINA) reached theoretical lows leaving little room to the downside. Industry leader Baidu.com Inc. (NASDAQ:BIDU) is almost as oversold and is expected to bottom out soon. NetEase.com Inc. (NASDAQ:NTES) looks similar to Shanda Interactive (NASDAQ:SNDA) from a technical point of view. Both stocks have more upside potential than downside risk.  Home Inns & Hotels Management (NASDAQ:HMIN) is oversold to the extremes after a steep fall. China Eastern Airlines (NYSE:CEA) is not oversold and has more downside risk left. The same is true to China Southern Airlines (NYSE:ZNH). Smaller stocks are hard to predict with technical indicators, a reason behind not writing much about China Nepstar (NYSE:NPD) or China BAK Battery (NASDAQ:CBAK).

More downside is possible for Sina Corp. (NASDAQ:SINA) as long as the market heads south. Nevertheless Sina Corp. (NASDAQ:SINA) is a buy at current prices on technicals and fundamentals combined. The company has rock solid fundamentals and is oversold. Should market sentiment improve, Sina is expected to explode.

The same is true for other quality Chinese Internet stocks. Baidu.com Inc. (NASDAQ:BIDU) may flirt with the $100 level but as soon as markets head north, the stock has enormous upside potential. The Chinese economy is not in recession giving domestic firms a chance to grow at a fast pace. Chinese internet stocks have done just that making them attractive on valuation.

Home Inns & Hotels Management (NASDAQ:HMIN) is oversold for its unusually steep decline for the last two weeks. The stock beat the markets up until noon on Monday but succumbed to profit taking by the end of the trading day. Nevertheless upside potential exceeds downside risk for the company.

Shanda Interactive (NASDAQ:SNDA) and NetEase,.com Inc. (NASDAQ:NTES) are considered oversold as well. While more downside is possible, both these stocks are expected to do well right at a market turnaround.

Outlook remains dim for airliners after American Airlines (NYSE:AMR) is nearing bankruptcy, cooling off the sector. China Eastern Airlines (NYSE:CEA) and China Southern Airlines (NYSE:ZNH) have more downside left, according to the oversold monitor.

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There is not much to see on the overbought China stock list for today.

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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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