Investors found solace in better then expected U.S. jobless numbers and improved factory orders from Japan. Indices in Asia soared to the news, except for the Shanghai Composite. But China's domestic market was consumed by news that the government will curtail liquidity thus capping the gains of the index. The Shanghai Composite fell 0.3% on Monday, the fourth time in a row.
But trading in Hong Kong was remarkably different. The Hang Seng Index jumped 554.15 points or 2.72% to the close on improved global economic outlook. The rally was universal, number of stocks gaining outnumeber those then fell 38 to 6. Resource players, metal stocks soared. Aluminum Corp. of China (HKG:2600)(NYSE:ACH) advanced 5.6% just behind Jiangxi Copper (HKG:0358). China Mobile (HKG:0941)(NYSE:CHL) led the telecom sector higher.
Chinese stocks should get a boost from Hong Kong but European stocks are lower as investors take a break. The number of overbought Chinese stocks is low and on the decline, the relative strength indicator (RSI) is moderate, all suggesting a bullish sentiment for Chinese ADRs.
Looking at Chinese indices and trailing ETFs from a technical point of view, the Shanghai Composite is trading back at its trading range while its ETF, the Morgan Stanley China (NYSE:CAF) is far more hurt. This in turn suggest upside potential for the CAF.
The Hang Seng Index remained above it s normal trading range but its traliling EFT, the iShanres FTSE/Xinhua 25 Index (NYSE:FXI) is below its peer and thus has some ground to make up.
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.