January 16, 2013 (Chinavestor) Two strong market days in a row put some of the most volatile Chinese stocks in a precarious position. Canadian Solar (NASDAQ:CSIQ) is leading the overbought China stock screen and for a reason. This stock is trading well above its trading envelope though it hasn't reached theoretical high prices yet. All we can say is that direction for CSIQ is uncertain from here.
Melco Crown Entertainment (NASDAQ:MPEL) is looking better for the short term on the overbought chart. The stock is trading above its treading envelope but is still far from theoretical highs.
The size of the arrow looks excessive for Jinyuan (NASDAQ:DATE) and Sutor Technology (NASDAQ:SUTR). This implies downside risk exceeds upside potential for both.
The most notable development on the oversold stock screen is that LDK Solar (NYSE:LDK) is now among top three oversold Chinese stocks. It is very much in line with Ctrip.com (NASDAQ:CTRP) and China Unicom (NYSE:CHU).
Given that none of these stocks have reached theoretical lows yet, more downside is possible.
Another development that Baidu.com Inc. (NASDAQ:BIDU) is also among 25 most oversold China stocks. BIDU is not considered extremely oversold but is trading within its trading envelope again. See chart for details.
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.