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China stocks ready to rock the house, watch out for Morgan Stanley China (CAF) on Thursday

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advance3(Aug. 20 2009, Chinavestor) Shares of Chinese companies rallied in Asia as bargain hunters grabbed the horns of the market. The Shanghai Composite erased all losses from the day before by adding 125.988 points or 4.52% to end the session at 2,911.58 points. Trading in Hong Kong was almost as euphoric as in Shanghai. The Hang Seng Index jumped 374.63 points or 1.88% back over the 20,000 level. The rally was universal, only two stocks out of the forty four member Hang Seng Index fell. Airliners, metal players and telecom stocks led the rally. Aluminum Corp. of China (HKG:2600)(NYSE:ACH) rose 4.2% followed by China Unicom (HKG:0762)(NYSE:CHU). CHU reported operational statistics for July and it looks as if the markets were expecting something worse.

Chinese ADRs look good from a technical point of view at this points. They experienced a dramatic pull back from earlier highs and now are ready to make a come back. 

pre-820

Chinese indexes and ETFs are looking neutral except for the Shanghai Composite and its trailing ETF, the Morgan Stanley China (NYSE:CAF). Accorering to the overbought oversold indicator, the Morgan Stanley China (CAF) is still oversold and has upside potential.

index-820

expl-obos

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.



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