February 21, 2013 (Chinavestor) The overbought monitor picked up the unusual advance of China Housing & Land Development (NASDAQ:CHLN). The company reported quarterly financials and advanced with heavy underlying volume. This suggests more upside is likely albeit the stock is considered overbought. More upside looks possible for the next 5 days but a short, temporary correction would come as little surprise.
China Gerui Adv Mat. (NASDAQ:CHOP) and KongZhong Corp. (NASDAQ:KONG) have unusual volume, according to the overbought monitor. But what really matters is stocks with sufficient trading volume and good trading characteristics. Sina Corp. (NASDAQ:SINA) is such a stock and despite latest advances, the stock is trading just at the high end of its trading envelope. More upside is possible. Same is true for NetEase Inc. (NASDAQ:NTES), among others.
China BAK Battery (NASDAQ:CBAK) is now oversold. The stock has reached theoretical lows and is ready to pop. But oversold is not bullish but suggests that a stocks fell too fast, too much and a technical correction is possible. But experience has taught us that unless underlying fundamentals change a stock will reamin weak.
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.