December 16, 2011 (Chinavestor) Overbought and oversold indicator work best for liquid, larger stocks. That said, downside risk exceeds upside potential for ChinaEdu Corp. (NASDAQ:CEDU), but again, the overbought monitor is unreliable for a stock like this. And this concludes the overbought report for today... Investors should pay attention to the oversold end of the China stock universe though. Sina Corp. (NASDAQ:SINA) is not oversold despite recent losses. Baidu.com Inc. (NASDAQ:BIDU) fell faster than Sina and has a higher chance of turning around. China Mobile (NYSE:CHL) is another value play that looks attractive at current prices. For detailed info, scroll down to the second chart.
China Nepstar (NYSE:NPD) has been on a slide for a month and has reached oversold position. But given stock characteristics, e.g. low trading volume and small market cap, more downside is possible.
Sina Corp. (NASDAQ:SINA) has been on a slide for a long time, too. But the stock hasn't reached theoretical lows yet, presenting problem for the bulls.
Baidu.com Inc. (NASDAQ:BIDU) fell harder lately, suggesting the slide will have to subdue. Should market sentiment improve, these tech stocks offer a lot of upside!
China Mobile (NYSE:CHL), China's largest mobile carrier, is also an appealing play at the moment. The stock fell hard, too much and is a solid player in the telecom field. While the stock is not sexy for trading, it is certainly an appealing stock for investing.
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.