April 17, 2014 (Chinavestor) Smaller cap stocks dominate both the overbought as well as the oversold China stock screen today. This is a problem because technical indicators in general, and the overbought and oversold indicator in particular, is not fit for such stocks. Lack of volume renders this indicator a whole lot less accurate for such stocks.
This explains why we are going to go shy on words today and leave the pictures/charts to speak for themselves instead.
If anything, stocks of interest on the overbought China stock screen include Huaneng Power (NYSE:HNP) and China Unicom (NYSE:CHU). Both have noticeably advanced in the past two weeks but have not jumped too much, too fast. This implies more upside is possible for both HNP and CHU.
Sina Corp. (NASDAQ:SINA) is the largest China stock by market cap on the oversold monitor this morning. Other than SIAN, Sohu.com inc. (NASDAQ:SOHU) boast large enough volume for our purposes. Neither SINA nor SOHU is considered oversold at this point. Both trade below the trading range but are not way below it as the following chart suggests. SOHU has been trading in a narrow range lately, SINA is somewhat different. See chart below for details.
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.