January 17, 2014 (Chinavestor) There are some interesting developments happening among US listed Chinese stocks before the market open on Friday. First observation: there are a good number of Chinese ADRs on fire. Take a look at the arrow of stocks like Qihoo 360 Technology (NYSE:QIHU). This ADR surged as much as 10% in just the last three days! Smaller Sutor Technology (NASDAQ:SUTR) mustered similar momentum albeit it is a very different stock in trading characteristics. Qihoo 360 Technology (NYSE:QIHU) is not only a lot bigger stocks in market cap but when it comes to trading, it has real volume. Average trading volume for QIHU is 2.5 million shares a day versus Sutor's 50k... This means that investors have to take SUTR's reading with a big grain of salt. Remember, technical indicators work best for stocks that have sufficient trading volume, like Qihoo 360 Technology (NYSE:QIHU) and Melco Crown Entertainment (NASDAQ:MPEL) on the overbought chart.
It is important to point out what makes stocks considered overbought. They either reach theoretical highs or just simply advance too much, too fast. This latter is measured by the size of the arrow. In this case the arrow for Qihoo 360 Technology (NYSE:QIHU) is out of ordinary and suggests that the stock will have to take a break before resuming the rally. In this regard short term outlook is better for Melco Crown Ent. (NASDAQ:MPEL).
The second chart list the most oversold Chinese stocks. China Unicom (NYSE:CHU) has been showing weakness for quite some time and has reached theoretical lows now. The stock is expected to bottom out based on this technical indicator.
LDK Solar (NYSE:LDK) is also at theoretical lows.
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.