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Not all China stocks catch Yellen rally

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bull_bear_4 February 12, 2014 (Chinavestor) Momentum carried over to US listed Chinese stocks in the last few days, no doubt about that. To separate darlings from dogs, the overbought/oversold indicator is he way to go. Here is a case for stocks like RenRen Inc. (NYSE:RENN) or Aluminum Corp. of China (NYSE:ACH). As a matter of fact, Chinese airliners are in this category too. China Southern Airlines (NYSE:ZNH) as well as China Eastern Airlines (NYSE:CEA) advanced fast in the last few days yet are not considered overbought. Lack of growth is hurting Sohu.com Inc. (NASDAQ:SOHU) and its former subsidiary Changyou.com Inc. (NASDAQ:CYOU). Another internet stock Sina Corp. (NASDAQ:SINA) lacks momentum as well, according to the oversold chart.

 

What's considered overbought are stocks that advance too fast, too much compared to their own trading characteristics. General Steel (NYSE:GSI) is one of them. This low volume, sleepy ADR rose $.20 just like Acorn Int. (NYSE:ATV). Even a small jump like that is too much for these low trading quality stocks.

RenRen Inc. (NYSE:RENN) is a different story just like Aluminum Corp. of China (NYSE:ACH) or Melco Crown Entertainment (NASDAQ:MPEL). These stocks advanced fast but not extraordinarily according to the overbought monitor. Renren Inc. (NYSE:RENN) is now above its trading range but is still far from theoretical highs. The same goes for Aluminum Corp. of China (NYSE:ACH), China's largest aluminum maker. ACH is just barely above its normal trading range, leaving plenty of room to grow. Theoretical highs are at $9.7 as the following chart testifies.

Chinese airliners are looking good as well. China Eastern Airlines (NYSE:CEA) was as low as $15.9 three days ago but is now back just under $18. Yet the stock is not showing on the overbought screen. China Southern Airlines (NYSE:ZNH) has a similar story. Strong gains in the last couple of days. Lack of presence on the overbought China stock screen suggests more upside is possible for China Eastern Airlines (NYSE:CEA) as well as for China Southern Airlines (NYSE:ZNH) despite recent gains.

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But not all Chinese stocks advanced. Changyou.com Inc. (NASDAQ:CYOU) remains oversold. Former parent company, Sohu.com Inc. (NASDAQ:SOHU) fell just yesterday despite strong market momentum. So did Sina Corp. (NASDAQ:SINA) and NetEase Inc. (NASDAQ:NTES). And while SIna Corp. (NASDAQ:SINA) or Sohu.com Inc. (NASDAQ:SOHU) are not oversold, lack of momentum is evident.

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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.

 

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