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CHU pulled back, not overbought

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buy_5 August 29, 2012 (Chinavestor) China Unicom (NYSE:CHU) may be on top of the overbought chart but make no mistake, the stock is not overbought. Current stock price is still far from theoretical highs, leaving more potential room to the upside after latest pull back. Some smaller, lot less liquid names made surprise moves, like NTE, GU or LTON, but don't be fooled by them. Technical indicators work for stocks that have sufficient trading volume.

OB_20120829

Despite recent losses, more downside looks possible for a large number of oversold stocks. CNinsure (NASDAQ:CISG), KonbgZhong Corp. (NASDAQ:KONG) and Sutor Tech (NASDAQ:SUTR) have not reached theoretical lows yet. Be careful, investor.

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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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