March 11, 2014 (Chinavestor) The overbought China stock monitor picked up some stocks extremes this morning. Among them are General Steel (NYSE:GSI) and CNinsure Inc. (NASDAQ:CISG). Good news is that the same monitor predicting a decline for E Commerce China Dangdang (NASDAQ:DANG), Perfect World (NASDAQ:PWRD), and for SouFun Holdings (NYSE:SFUN) did work perfectly on Monday. See details below.
Today's China overbought stock monitor is dominated by two stocks: General Steel (NYSE:GAI) and CNinsure Inc. (NASDAQ:CISG). Both stocks have advanced too much, too fast and have reached theoretical highs. Needless to say both are extremely overbought and set to take a breather.
However there are some differences between the two. General Steel (NYSE:GSI) is a low volume, small cap China play that don't abide by technical rules. In other words, the overbought monitor don't work as well for GSI.
CNinsure (NASDAQ:CISG) is a better trading stock but is still far from ideal.
But if investors take a look at Perfect World Co. Ltd. (NASDAQ:PWRD), an extremely overbought China play on Monday morning, normalcy returns. The same goes for E Commerce China Dangdang (NASDAQ:DANG), a stock that rose 70% after earnings release last week. DANG has a trading volume of 5 million shares on average vs. 69k for CISG...
The overbought monitor worked for E Commerce China Dangdang (NASDAQ:DANG), Perfect World (NASDAQ:PWRD) and SouFun Holdings (NYSE:SFUN) perfectly just yesterday. Good news is that after Monday's decline, DANG, PWRD and SFUN are ready to resume an advance, market sentiment permitting...
Here is the overbought China stock monitor last night. We said that "Based on the overbought indicator, Perfect World Co. (NASDAQ:PWRD) is the first "real" stock on the overbought screen. PWRD is trading very close to theoretical highs this morning and is highly vulnerable. Theoretical high price for Perfect World (NASDAQ:PWRD) is $26.7 and Friday's close at $25 is just too close to that price, according to the following chart. Downside risk exceeds upside potential for PWRD at this point.
E Commerce China Dangdang (NASDAQ:DANG) is the second stock on the screen below. DANG advanced too fast, too much in the past few weeks and thus is considered overbought. The pace of advance is highly unusual not only for DANG itself but compared to other Chinese stocks as well. DANG is under pressure going forward, no doubt."
Again, SouFun Holdings (NYSE:SFUN), Perfect World (NASDAQ:PWRD) as well as E Commerce China Dangadang (NASDAQ:DANG) fell back to normal price levels on Monday throughout the trading day.
Definition of 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.