January 24, (Chinavestor) Despite a huge decline by Baidu Inc. (NASDAQ:BIDU) on Thursday, Sina Corp. (NASDAQ:SINA) is on top of the oversold China stock chart this morning. Well, Sina Corp. (NASDAQ:SINA) had its own share of a free fall on Thursday as well thanks to a $5 drop. Well, most of it took place right at the open, or to be precise during pre-market trading hours. So investors starting to trade at the open were already late. The stock was flat for most of the day.
Going forward the oversold indicator says a different story. Some weakness is still possible for Sina Corp. (NASDAQ:SINA) but upside potential exceeds downside risk. Reason being that Sina Corp. (NASDAQ:SINA) is very close to theoretical lows and as such is ready to bottom out or even pop up. But stocks alone can't fight the market as we know it. So use common sense trading experience to get the most out of the current situation.
Baidu Inc. (NASDAQ:BIDU) is a different story from a technical point of view. The stock fell $10.85, the most in 52 weeks yesterday. But Baidu Inc. (NASDAQ:BIDU) is not oversold! This is clearly demonstrated on the following chart. As a matter of fact, Baidu Inc. (NASDAQ:BIDU) is still trading within its trading envelope and is still far from theoretical lows. When BIDU reaches $154 will be oversold. For now, more downside is clearly possible.
Other stocks of interest on the oversold screen include China Unicom (NYSE:CHU) and Mindray Medical (NYSE:MR). These are stocks with sufficient trading volume to render technical indicators relevant. But this is not the case for China Green Agriculture (NYSE:CGA) and China BAK Battery (NASDAQ:CBAK). These small cap, low trading volume stocks are not fit for the overbought or oversold indicator.
Given that Telestone Technologies (NASDAQ:TSTC) has low trading volume and low market cap, this stock is also unfit for the oversold indicator. So don't try to make sense out of it for TSTC.
Aluminum Crop. of china (NYSE:ACH) is the first stock of interest on the overbought chart. ACH is not overbought despite recent rally. Visit the following chart to find Chinese stocks with trading opportunities.
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.