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Overbought stocks in danger mid Jan.

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watch_out January 11, 2012 (Chinavestor) Chinese internet stocks surged the most on Tuesday like Sina Corp. (NASDAQ:SINA), but that wasn't enough to push them to an extreme overbought position. Instead, overbought stsocks from a day before were able to extend gains and stay in the red zone. That said, Vanceinfo Tech (NYSE:VIT), American Oriental (NYSE:AOB) and ChinaCache Int. (NASDAQ:CCIH) are overbought to extremes and ready for a pullback. China Southern Airlines (NYSE:ZNH), Soufun Holdings (NYSE:SFUN) are also in a danger zone right now. China Telecom (NYSE:CHA) advanced 5% on Tuesday, moving away from extreme oversold position.

But most of the action is taking place on the overbought end of the China stock universe. China Southern Airlines (NYSE:ZNH) surged 7.6% on Tuesday and is expected to face a correction today.

Soufun Holdings (NYSE:SFUN) has been advancing since last week and is now in a tight spot.

Chinese internet stocks were on the move on Tuesday. Sina Corp. (NASDAQ:SINA) rose 12.8%, the most in four months. Baidu.com Inc. (NASDAQ:BIDU), NetEase.com Inc. (NASDAQ:NTES) and all other prominent internet stocks rocked. And while more upside is possible before earnings announcements in February, short term upside looks limited for Sina (NASDAQ:SINA) after a 10% plus surge.

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china Telecom (NYSE:CHA) is trading closest to theoretical lows but is not considered oversold anymore. The stock was oversold a day before and we foretold a surge before the market open on Tuesday.

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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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