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Oversold internet stocks offer upside

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cash1 November 28, 2011 (Chinavestor) Most of the action is taking place on the oversold end of the China stock universe on Monday. Changyou.com Ltd. (NASDAQ:CYOU) reached theoretical lows and is ready for a comeback sometime the week. Sina Corp. (NASDAQ:SINA) fell the hardest among large internet stocks but has more downside left. Ctrip.com Int. (NASDAQ:CTRP) is like Sina Corp. (NASDAQ:SINA) from a technical point of view. There is not much to see on the overbought stock list except for China XD Plastics (NASDAQ:CXDC), a stock with sustainable momentum.

Back to the oversold screen. While there are a lot of Chinese stocks with significant losses from last week, only Changyou.com Ltd. (NASDAQ:CYOU) is in extreme oversold position. We have seen Ctrip.com Int. (NASDAQ:CTRP) in a similar situation last week and predicted a bounce back. But a turnaround is not necessarily imminent, investors have to exercise caution.

Sina Corp. (NASDAQ:SINA) is a prominent internet stock that is getting oversold. All we can say at this point is that upside potential is larger than downside risk.

OS_20111128

China XD Plastics (NASDAQ:CXDC) is on top of the overbought China stock list. That said the stock is far from extreme overbought position, offering additional upside.

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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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