August 12, 2009 Wednesday will be marked as the dooms day for Chinese stocks. The Shanghai Composite fell 4.66%, its worst in 2009 followed by a slightly better but still disastrous performance in Hong Kong where the Hang Seng Index dived 638.97 points or 3.03%, its worst in three months. Correction was looming around for the Shanghai Composite, the index that rose 75% this year by early August. The index fell four days in row earlier this week and traded sideways on Tuesday but finally gave in on Wednesday. The impetus came from the ministry of Commerce where exports data is handled. Accoring to the minstry,domestic economic activity can't “provide a full remedy for the sharp contraction in external demand. Despite a more self-evident economic turnaround in China, the prospect for the world economy remains unclear and the downside risk to external demand remains significant.”
Chinese indices tumbed and the prospect for their trailing ETFs became gloomy for the short term as well.
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.