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Overbought stocks to avoid

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bubble_2 November 4, 2011 (Chinavestor)There are a good number of overbought stocks ready to pull back this morning. China Life insurance (NYSE:LFC) is one, but so is Fushi Copperweld (NASDAQ:FSIN), Origin Agritech (NASDAQ:SEED) and American Oriental (NYSE:AOB). Telestone Technologies (NASDAQ:TSTC) is also in danger along with Nam Tai Electronics (NYSE:NTE) and Synutra international (NASDAQ:SYUT). As far as oversold stocks go today, it's rally Asiainfo-Linkage (NASDAQ:ASIA) and CDC Corp. (NASDAQ:CHINA) that sat something to say. Back to the overbought screen. China Life Insurance (NYSE:LFC) has reached theoretical highs and is ready to take a breather. Fushi Copperweld (NASDAQ:FSIN) is trading at overbought extremes and is likely to fall back on Friday. Origin Agritech (NASDAQ:SEED) has a lot less volume and is a small cap stock, making the overbought indicator less accurate.

Telestone Technologies (NASDAQ:TSTC), Nam Tai Electronics (NYSE:NTE) and American Oriental (NYSE:AOB) are vulnerable not only for their technical reading today but also for their "reverse merger" status. When risk awareness is on the rise, these stocks are vulnerable the most.

Syunutra International (NASDAQ:SYUT) has good trading volume but is overbought technically speaking.

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There is no oversold China stock at the moment. AsiaInfo-Linkage (NASDAQ:ASIA) fell following earnings announcement but is not expected to hit bottom yet.

CDC Corp. (NASDAQ:CHINA) has more downside risk left as well, according to the oversold monitor.

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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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