February 12, 2013 (Chinavestor) A limited number of small cap Chinese stocks continue to dominate the overbought chart. ChinaEdu Corp. (NASDAQ:CEDU) is overbought after two days of unusual advance. 3SBio Inc. (NASDAQ:SSRX) is attracting just as much attention on the following screen. But investors have to remember that technical indicators work best for liquid, mid to large cap stocks. Given low trading volume and lack of investor appetite for CEDU, current reading on the overbought chart is of little value.
Instead, investors should pay attention to stocks such as Seaspan Corp. (NYSE:SSW), a stock that has experienced some pull back after a good run in the past three months. The stock is not overbought and may regain strength in the upcoming weeks.
Chinese solar stocks advanced universally on Monday and are not overbought. Trina Solar (NYSE:TSL), Yingli Green Energy (NYSE:), and Canadian Solar (NASDAQ:CSIQ) made it to the bottom of the overbought chart. A lot more upside is possible albeit not granted, according to the overbought monitor.
Large cap Chinese stocks, China Telecom (NYSE:CHA) and CNOOC Ltd. (NYSE:CEO) are among the top five oversold stocks this morning. Neither CNOOC Ltd. (NYSE:CEO) nor China Telecom (NYSE:CHA) has reached theoretical lows yet. This implies downside risk persists for both liquid ADRs. Same is true for small cap CNinsure (NASDAQ:CISG), the stock on top of the oversold chart.
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.