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BIDU, SINA, SOHU not oversold yet

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auditor1 April 11, 2014 (Chinavestor) The tech sell-off hit Chinese stocks especially hard on Thursday. Yet there was one stock of exception. Sinopec Shanghai Petrochemical (NYSE:SHI) surged $4.69 in a surprise rally. Still, the was not about winners. Baidu Inc. (NASDAQ:BIDU) shed $6.71, the most among major NYSE and NASDAQ listed Chinese stocks. Smaller internet stocks followed industry leader lower. Sina Corp. (NASDAQ:SINA) fell $3.67 along party line. Another internet darling, Sohu.com Inc. (NASDAQ:SOHU) fell $1.86. Highly liquid tech stocks from the NYSE, 58.com Inc. (NYSE:WUBA) and 500.com Ltd. (NYSE:WBAI) fell $3.06 and $2.61, each.

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Good news on a larger scale! Aluminum Corp. of China (NYSE:ACH), China's largest aluminum maker, advanced 9.5% on the back of sound Alcoa (NYSE:AA) earnings. But investors have to exercise caution going forward. ACH is now extremely overbought and downside risk exceeds upside potential.

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Despite a significant fall, Chinese internet stocks are not oversold yet. Baidu Inc. (NASDAQ:BIDU) had a great run two days before Thursday's collapse and thus is not on the oversold China stock list, yet.

Sina Corp. (NASDAQ:SINA) is somewhat different. Sina fell hard and is among the top 20 oversold China stocks. But SINA is not oversold to the extremes.

Sohu.com inc. (NASDAQ:SOHU) is the same way. Sohu hasn't reached the low end of the theoretical trading range and is not oversold. More downside is possible.

This goes for Youku Tudou (NYSE:YOKU) as well.

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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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