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SCR and other stock extremes

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snow_2 January 4, 2012 (Chinavestor) There are two China stock extremes on the overbought chart today: Qiao Xing Mobile (NYSE:QXM) and Simcere Pharma (NYSE:SCR). Both stocks reached theoretical highs and are ready to take a breather. Sinopec (NYSE:SNP), Asia's largest refiner by volume, is looking a bit overstretched at the moment. But Fushi Copperweld (NASDAQ:FSIN) and China Unicom (NYSE:CHU) has room left to the upside despite latest gains. There are no extremely oversold China stocks at the moment. Telestone Technologies (NASDAQ:TSTC) fell hard and is on the list with more downside potential. Sina Corp. (NASDAQ:SINA) is off the list after a 6.9% surge yesterday.

Back to the overbought screen. Downside risk exceeds upside potential for Qiao Xing Mobile (NYSE:QXM) and Simcere Pharma (NYSE:SCR).These overbought stocks are especially vulnerable when market is missing momentum. Large cap Sinopec (NYSE:SNP) may weather the storm well just like China Unicom (NYSE:CHU). Direction for Fushi Copperweld (NASDAQ:FSIN) is uncertain at this point given its stock characteristics. But one thing is for sure: upside is possible albeit is not granted.

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Ata Inc. (NASDAQ:ATAI) is trading closest to theoretical lows but is not considered oversold yet. Telestone Technologies (NASDAQ:TSTC) is not oversold either despite a significant fall on Tuesday. Investors have to exercise caution with this volatile stock.

We argued that Sina Corp. (NASDAQ:SINA) presents upside potential and this is what the stock did on the first trading day of the new year. More upside is possible but is not granted.

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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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