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Stocks with downside risk, Nov 7

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decline_6 November 7, 2011 (Chinavestor) There are a good number of overbought China stocks this morning. Downside risk exceeds upside potential for China Life Insurance (NYSE:LFC), Origin Agritech (NASDAQ:SEED), Telestone Technologies (NASADAQ:TSTC) and American Oriental Bio (NYSE:AOB). Fushi Copperweld (NASDAQ:FSIN) and Synutra International (NASDAQ:SYUT) are also in a vulnerable position. China Telecom (NYSE:CHA) and AsiaInfo-Linkage (NASDAQ:ASIA) are stocks of interest on the oversold screen.

 

China Life Insurance (NYSE:LFC) reached theoretical highs after a 25% surge in the last two weeks. The stock is overbought and is ready to take a breather right now.

Smaller stocks under $1 are hard to predict for even a small trade at the end of the trading day can chance the course of the stock price. For this reason it's difficult to say what American Oriental (NYSE:AOB), Origin Agritech (NASDAQ:SEED) or China BAK Battery (NASDAQ:CBAK) is going to do, not to mention Cleantech Solutions (NASDAQ:CLNT).

However Fushi Copperweld (NASDAQ:FSIN) and Synutra International (NASDAQ:SYUT) are stocks with substance; good stock price and trading volume. These stocks are not overbought to the extremes but are vunlerable to a pull back should market sentiment sour.

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China Telecom (NYSE:CHA) is trading close to theoretical lows but hasn't reached it yet. This implies more downside is possible for China's largest fixed line operator.

Earnings sank AsiaInfo-Linkage (NASDAQ:ASIA) last week but not to extreme lows. More downside is possible albeit not necessary. The stock is trying to find support but there is not much reason for a comeback.

OS_20111107

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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