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Small cap overbought stocks in November

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buy_sell_hold_icon November 3, 2011 (Chinavestor) Upside is limited for China Life insurance (NYSE:LFC), Origin Agritech (NASDAQ:SEED)  and Spreadtrum Communications (NASDAQ:SPRD), according to the overbought chart. Downside risk exceeds upside potential for Telestone Technologies (NASDAQ:TSTSC) as well as for American Oriental (NYSE:AOB) and China BAK Battery (NASDAQ:CBAK). Asiainfo-Linkage (NASDAQ:ASIA) has the most dramatic fall on the oversold screen this morning. Back to the overbought screen. China Life Insurance (NYSE:LFC) has reached theoretical highs and is overbought. But considering a sound performance in Asia this morning, the stock is well positioned to advance even more today.

Smaller stocks susceptible to a correction include Origin Agritech (NASDAQ:SEED), Telestone technologies (NASDAQ:TSTC) and American Oriental Bioengineering (NYSE:AOB). These stocks are smaller, reverse merger companies that may experience a free-fall should market sentiment sour.

Spreadtrum Communication (NASDAQ:SPRD) is a little different though. This stocks has ample volume and is a much larger company with market cap over $1 billion. Chances are that it won't collapse albeit a technical correction looks timely.

OB_2011113

There is not any oversold China stock at the moment. eLong inc. (NASDAQ:LONG) is trading closest to theoretical lows but is far from being oversold. Asiainfo-Linkage Inc. (NASDAQ:ASIA) disappointed investors with a weak Q3 report and soft Q4 outlook on Tuesday and fell hard. Yet there is a lot more room left to the downside according to the oversold chart.

OS_2011113

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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