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China stock extremes Nov 8.

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warning1 November 8, 2011 (Chinavestor) Large cap stocks stepped up the plate on Monday and became overbought. China Life Insurance (NYSE:LFC) is ready to take a breather. China Petroleum & Chemical Corp. (NYSE:SNP), Asia's largest refiner by volume, is also overbought. Spreadtrum Communications (NASDAQ:SPRD) is the next stock on the screen with sufficient volume. Online gamers lost momentum as is evidenced by Changyou.com Ltd. (NASDAQ:CYOU) and Perfect World (NASDAQ:PWRD). Internet darling Sina Corp. (NASDAQ:SINA) is not oversold but is among stocks that lack momentum.

 

Back to the overbought screen. China Life Insurance (NYSE:LFC) reached theoretical highs and is ready to pull back. China Petroleum & Chemical Corp. (NYSE:SNP), known as Sinopec, looks very similar to LFC from a technical point of view. Downside risk exceeds upside potential for both stocks.

Smaller cap Chinese stocks are also trading at extremes, like Telestone Technologies (NASDAQ:TSTC), Fushi Copperweld (NASDAQ:FSIN), Origin Agritech (NASDAQ:SEED) or Linktone Ltd. (NASDAQ:LTON), but given their trading characteristics - or the lack of it - makes the overbought indicator inaccurate.

Spreadtrum Communications (NASDAQ:SPRD) has sound momentum and is not overbought yet.

OB_20111108

There are no oversold Chinese stocks at the moment. Nevertheless weakness of Changyou.com Ltd. (NASDAQ:CYOU) is evident by the position of the stock. Perfect World (NASDAQ:PWRD) is not oversold but is another stock from the online game sphere that lacks momentum. Sina Corp. (NASDAQ:SINA) is not oversold either but is trading in a narrow range ahead of earnings.

OS_20111108

 

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.

aa_OBOS_expl_2weeks

 



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