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CISG, CSIQ at extreme prices

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compare March 12, 2014 (Chinavestor) The overbought China stock monitor identified some stock extremes, such as CNinsure Inc. (NASDAQ:CISG), General Steel (NYSE:GSI) and China Gerui Advanced Material (NASDAQ:CHOP). E Commerce China Dangdang (NASDAQ:DANG) pulled back after reaching similarly extreme trading condition and is now on the lower end of the overbought chart. Perfect World Co. Ltd. (NASDAQ:PWRD) and SouFun Holdings Ltd. (NYSE:SFUN) did the same. Finally, there is Canadian Solar (NASDAQ:CSIQ), an extremely oversold China play that is ready to make a comeback.

CNinsure Inc. (NASDAQ:CISG) dominated the overbought monitor this morning. The stock is trading at $8.6, right at theoretical high prices and way above its trading range. When a stock surges all the way to such extreme prices, downside risk exceeds upside potential for the short run. This implies today is a good day to take profits off CNinsure Inc. (NASDAQ:CISG).

General Steel (NYSE:GSI) may look similar to CNinsure on the chart but there are some notable differences between the two. First, GSI's market cap is a fraction of CISG and trading volume is extremely thin for GSI. For this reason GSI is really not a good comparison to CNinsure Inc. (NASDAQ:CISG). Due to low volume and market capitalization, GSI is not fit for technical analysis.

The use of the overbought monitor was tested again this week. E Commerce China Dangdang (NASDAQ:DANG) surged 70% after releasing earnings and became extremely overbought. The chart for DANG was very similar to what CISG looks today. Since then, E Commerce China Dangdang (NASDAQ:DANG) pulled back over 10% and is looking a lot more balanced on the overbought chart below.

The very same development took place with Perfect World Co. Ltd. (NASDAQ:PWRD) and SouFun Holdings Ltd. (NYSE:SFUN). Both stocks became extremely overbought and we said this Monday that PWRD, DANG, TSL are set to decline. And they did just that!

Finally, Renren Inc. (NYSE:RENN) did the same just a week ago. Became extremely overbought and then took a deep breather.

ADR_OB_20140312

Canadian Solar Inc. (NASADAQ:CSIQ) is to the oversold monitor what CISG is for the overbought one. Leader on top with an extreme position. Share price of Canadian Solar (NASDAQ:CSIQ) fell to $34.23 last night and that price is so low that the stock is set to make a comeback. At least investors should expect a level off from Canadian Solar (NASADAQ:CSIQ) after a 15% decline in just one week.

Silvercorp Metals (NYSE:SVM) and Huaneng Power Int. (NYSE:HNP) are oversold but have not reached extreme oversold position yet. This is different from Canadian Solar (NASDAQ:CSIQ).

ADR_OS_20140312

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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