(Aug. 24, 2009 - Chinavestor) Shares of Chinese companies rise in Shanghai and in Hong Kong on Monday, setting a positive tone for the week. The Shanghai Composite Index advanced 32.66 points or 1.1% to 2,993.43 points, just seven points shy of the 3,000 level. The index rose over 3,400 points earlier this month just to see a 20% correction. But the index has been recovering in the last three session as bargain hunters entered the market. Sinopec Corp. (NYSE:SNP) reported net income to triple sending its A-shares (SHA:600028) up 2.1% in Shanghai.
But Sinopec H-shares in Hong Kong (HKG:0386) advanced only a modest 0.72% despite strong market sentiment. The strong report from SNP was foreseen and most of the expected profits have been incorporated in its stocks price. The Hang Seng Index jumped 336.92 points or 1.67% following strong American market sentiment. Sale of existing homes rose well above expectations in the U.S., rising hopes that the worst for the housing sector is over. The advance in Hong Kong was universal, only five out of the forty four member Hang Seng Index components fell while the rest advanced. Metal and resource players led the rally as Jiangxi Copper (HKG:0358) jumped 5.2% followed by Aluminum Corp. of China (HKG:2600) (NYSE:ACH).
Looking ahead into the trading day, index futures point to a higher open as the market is trying to build on the sentiment of last week. Chinese ADRs look attractive from a technical point of view before the bell. There is not a single china ADR that is technically overbought, China Automotive Systems (NASDAQ:CAAS) is the closest, suggesting a bullish sentiment. The relative strength indicator is well under the 50 mark, suggesting there is more to the upside at this point. With a strong performance in Asia and index futures pointing to a higher open in America, expect Chinese stocks to outperform on Monday morning.
Looking at Chinese indices and their traliing ETFs from a technical point of view, there is more upside for the Shanghai Composite and the Morgan Stanley China (NYSE:CAF) then any other china ETF at this point.
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.