(Aug. 18, 2009, Chinavestor)Chinese stocks rebounded in Asia following a 10%-20% correction. The Shanghai Composite Index advanced 40.25 points or 1.4% to 2,910.88 while the Hang Seng Index from Hong Kong rose 168.62 points or 0.84% to 20,306.27. Metal prices firmed up helping Aluminum Corp. of China (NYSE:ACH) H-shares and A-shares to outperform. Power generator did well on the back of strong earnings prospects. Shanghai listed GD Power Development co. reported net income to double raising hopes for the whole sector. Huaneng Power (NYSE:HNP) A-shares rose 4.81% in Shanghai while her H-shares advanced 2.09% in Hong Kong. Expect the company ADRs to do well on the main board today.
Looking at American listed Chinese stocks it is apparent that their short term momentum is gone. the number of Chinese ADRs trading above their 50-DMA keeps coming down. There is not a single overbought China stock while the number of oversold China ADR is on the rise. The most dramatic change is depicted on the bottom of this chart - the Technical Measures of the China ADR universe. The number of Chinese ADRs trading above their 20-DMA, a short term momentum indicator, is next to zero at this point. But this not only means losses in the last few trading sessions but creates opportunities for the smart investor. If anything, this is a time to buy oversold China ADRs. Bottom fishing is here!
Looking at Chinese indices and their trailing ETFs, the Morgan Stanley China (NYSE:CAF) looks set to rise. The Shanghai Composite index experienced a 20%correction in the last two weeks leaving the CAF bleeding. But CAF is now oversold and is ready to rally, according to the overbought/oversold report.
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.