Chinese stocks regained momentum in Shanghai and Hong Kong on Tuesday. The Shanghai Composite Index advanced 14.96 points or 0.46% to 3,264.76 spurred by better then expected retail numbers and earnings from Quingdao Heier. But metal stocks slid as exports data fell for the seventh straight months, showing further weakness in one of China's economic pillar. But trading in Hong Kong remained robust. The Hang Seng Index advanced 144.69 points or 0.69% to 21,074.21, a 52 week high. Large cap China stocks pulled the index higher. Petrochina (HKG:0857)(NYSE:PTR), an index heavy weight, advanced 0.5% while insurer China Life Insurance (HKG:2628)(NYSE:LFC) and Ping An Insurance (HKG:2318) helped the index as well. Power companies outperformed on data suggesting that power consumption rebounded on the back of strong economic activity. But telecom stocks declined and number of stock that fell outnumbered those that gained 5 to 4.
Looking at the Chinavestor summary of events, there is strong institutional interest in Huaneng Power (NYSE:HNP). This suggest strong money flows will keep Huaneng (HNP) from falling when profit takers dominate the market. Chinese ADRs look good from a technical point of view. The number of Chinese overbought ADRs are falling and is already low. looks as if Chinese stocks are set to follow overall American market sentiment on Tuesday.
Looking at Chinese indices from an overbought - oversold perspective, the picture is promising. despite strong gains in the Hang Seng, the index is not terribly overbought thus setting a positive tone for the iShares FTSE/Xinhua 25 Index (NYSE:FXI). The Claymore/AlphaSharesChina Small Cap ETF (NYSE:HAO) is oversold compared to the FXI or the China ADR Index (CAI), thus offering upside potential.
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.