November 5, 2013 (Chinavestor) Large cap Chinese stocks continue to lead the overbought monitor on Tuesday. This is a good sign for the rest of the industry. HSBC Plc. (NYSE:HBC), a Hang Seng Index component, is trading closest to theoretical highs but is not considered extremely overbought. The same goes for Sinopec (NYSE:SNP), China's largest oil refiner. The stock took advantage of lower crude prices globally, improving its margins. Again, more upside is possible for both large cap stocks.
Canadian Solar (NASDAQ:CSIQ) is trading well above its trading envelope, a sign that downside risk is exceeding upside potential. Investors have to exercise caution with CSIQ right now.
The oversold monitor picked up a lot of Chinese stocks with negative momentum. Those that fell too hard, too fast are considered oversold and are expected to take a breather. Among these are UTSI, NTES, CHOP, CYOU, CPSL and FENG. See chart below for details.
Note: technical indicators work best for liquid stocks!
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.