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China stocks facing correction

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decline_6 January 24, 2012 (Chinavestor) Some of the most vulnerable stocks this morning include Youku.com Inc. (NYSE:YOKU), WuXi Pharmatech (NYSE:WX), Aluminum Corp. of China (NYSE:ACH) and Tudou Holding (NASDAQ:TUDO).These stocks are extremely overbought and have sufficient trading volume to make technical indicators reliable. Vison China Media (NASDAQ:VISN), Cogo group (NASDAQ:COGO) and the likes are stocks with low trading quality (stock price, trading volume and market cap) where technical indicators are not working properly.

Instead, investors should pay attention to stocks like Youku.com Inc. (NYSE:YOKU), WuXi Pharmatech (NYSE:WX), Aluminum Corp. of China (NYSE:ACH) and Tudou Holding (NASDAQ:TUDO) on the overbought chart below.

OB_20120124

China Unicom (NYSE:CHU) is oversold but with index futures poinintg to a lower open, additional upside looks unlikely.

OS_20120124

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.

aa_OBOS_expl_2weeks


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