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China stocks on the move, Jan 10

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advance_8 January 10, 2012 (Chinavestor) There are a good number of overbought China stocks to worry about today. Upside looks limited for American Oriental Bioengineering (NYSE:AOB), ChinaCache Int. (NASDAQ:CCIH), Zhongpin Inc. (NASDAQ:HOGS) and Vanceinfo Technologies (NYSE:VIT), among others. Downside risk is on the rise for China Automotive Systems (NASDAQ:CAAS), Sinopec (NYSE:SNP), China XD Plastics (NASDAQ:CXDC) and SouFun Holdings (NYSE:SFUN) as well. China Telecom (NYSE:CHA) became oversold and is ready for a comeback. Internet and related stocks also suffered setbacks, evidenced by a weak showing of Perfect World (NASDAQ:PWRD), NetEase.com (NASDAQ:NTES) and 51job Inc. (NASDAQ:JOBS).

Back to the overbought screen. American Oriental Bioengineering (NYSE:AOB) and ChinaCache Int. (NASDAQ:CCIH) have reached theoretical highs and are trading well above their trading envelope. This suggests both stocks are ready to take a break. Zhongpin Inc. (NASDAQ:HOGS) and Vanceinfo Technologies (NYSE:VIT) advanced at an unusual pace and are expected to slow down.

Less drmatic but unusual is the advance of Sinopec (NYSE:SNP), China XD Plastics (NASDAQ:CXDC) and SouFun Holdings (NYSE:SFUN). When market sentiment is strong, these stocks may continue to do well but downside risk is on the rise!

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China Telecom (NYSE:CHA) fell to $55 and is ready to make a comeback. But weakness was not limited to this telecom only, Perfect World (NASDAQ:PWRD) and NetEase.com (NASDAQ:NTES) fell hard just as much. But these stocks haven't reached theoretical lows yet, leaving more room to the downside. 51job Inc. (NASDAQ:JOBS) is also a stock that has been steadily falling and may not have found the bottom yet.

Spreadtrum Communications (NASDAQ:SPRD) fell on speculations that the stock is a scam. http://seekingalpha.com/instablog/1054739-morrison-security-research/251520-sprd-1-1-3

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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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