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Internet stocks aren't overbought on Friday

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two_thimgbs October 28, 2011 (Chinavestor) Upside looks limited to large cap Petrochina Co. Ltd. (NYSE:PTR), China Life Insurance (NYSE:LFC) and HSBC Plc. (NYSE:HBC). Internet stocks look best ahead the opening bell thanks to a blockbuster quarterly report from Baidu.com Inc. (NASDAQ:BIDU). Chances are that Sina Corp. (NASDAQ:SINA) as well as Changyou.com Ltd. (NASDAQ:CYOU) will be gone from the oversold screen after the opening bell. The rally may not be exhausted yet for basic materials, like Silvercorp Metals (NYSE:SVM) and Aluminum Corp. of China (NYSE:ACH).

 

History has taught us that overbought stocks succumb to profit taking. That said downside risk exceeds short term upside potential for Petrochina Co. Ltd. (NYSE:PTR) as well as China Life Insurance (NYSE:LFC) and HCBC plc. (NYSE:HBC).

Sinopec (NYSE:SNP), Asia's largest oil refiner, reported earnings along with Petrochina Co. Ltd. (NYSE:PTR) yesterday. High oil prices in the third quarter lifted earnings for PTR but dented into profits of Sinopec (NYSE:SNP). Sinopec Shanghai Petrochemical (NYSE:SHI) is under pressure as well, as a result.

But internet stocks are going to have an exciting day and week ahead. Baidu.com Inc. (NASDAQ:BIDU) numbers blew past estimates and considering that current stock price is far from overbought, upside is unlimited by technicals today. When industry leaders soar, the rest of the sector follows. NetEase.com Inc. (NASDAQ:NTES), Sina Corp. (NASDAQ:SINA) and Sohu.com Inc. (NASDAQ:SOHU) are going to benefit from BIDU's numbers, besides smaller names like Qihoo 360 Technology (NYSE:QIHU) or RenRen (NYSE:RENN).

Silvercorp Metals (NYSE:SVM) has momentum but is not overbought to the extremes yet. This bodes well for the stocks as well for Aluminum Corp. of China (NYSE:ACH).

E-House Holdings (NYSE:EJ) and Spreadtrum Communications (NASDAQ:SPRD) are not overbought either and may extrend advances should market sentiment remain strong.

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Interestingly. there are two internet stocks on the oversold screen this morning. Sina Corp. (NASDAQ:SINA) is not oversold but is finding it hard to advance. With BIDU's earnings on the table, outlook sweetened for all internet stocks.

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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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