May 1, 2014 (Chinavestor) It is a lot easier to find oversold Chinese ADRs than overbought ones, despite a record close for the Dow. Small cap US listed Chinese stocks find it hard to get much love from investors on Wall Street. WuXi Pharma (NYSE:WX), ChinaCache International (NASDAQ:CCIH), Phoenix New Media (NASDAQ:FENG), E-House Holdings (NYSE:EJ) a,d Xinyuan Real Estate (NYSE:XIN) are considered oversold to a different degree, according to the following chart.
And while small caps struggle, large cap telecom stocks are on fire. China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) far outperformed the broad market. Scroll down to see second chart for details.
Large cap Chinese ADRs don't get to be overbought all that often. Yet this is the case with two out of three Chinese telecoms, listed on the NYSE. China Unicom (NYSE:CHU) not only advanced 6.1% last night but has been on fire for the last four trading days. The stock is up 16.7% since Friday,inline with fixed line telecom provider China Telecom (NYSE:CHA).
Both China Telecom (NYSE:CHA) and China Unicom (NYSE:CHU) have reached theoretical high stock prices and thus are considered overbought. CHA is up 12.72% since Friday and CHU advanced 16.72%. Industry leader China Mobile (NYSE:CHL) rose 5.94% on the same time.
Some argue that Chinese stocks valuations are off. Corporate growth have been strong since 2010 yet stocks are trading cheaper than three years ago. Some argue that the time is right for a Chinese bull market.
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.