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Shanghai firms up, Hong Kong drops

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pre-market_thumb_6-3(Sept. 2, 2009 - Chinavestor) Chinese stocks continued to firm up in Shanghai while their Hong Kong counterparts suffered heavily as index heavy weight HSBC Holdings (HKG:0005) fell 3.18%. Investors became leery about the outlook of American financials, sending Chinese banks lower on Tuesday. Aluminum Corp. of China (HKG:2600) fell another 2.28% as market sentiment became negative toward non-ferrous metal makers.

But large cap stocks pushed the Shanghai Composite Index 31.25  points higher to 2,714.97 points as the index is trying to find a bottom. A-shares of index heavy weight Petrochina rose followed by Huaneng Power, China Eastern Airlines and Yanzhou Coal.

S&P Index futures point to a narrow open. With a strong correlation between Hong Kong and NYSE listed Chinese stocks, expect a negative day for Chinese ADRs. Based on Hong Kong trading on Wednesday, Yanzhou Coal (NYSE:YZC), China Eastern Airlines (NYSE:CEA) and the entire Chinese telecom market with China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) and China Mobile (NYSE:CHL) are expected to underperform.

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Trading opportunities are present by looking at Chinese indices and their trailing ETFs from a technical point of view. The Shanghai Composite Index and its trailing ETF, the Morgan Stanley China (NYSE:CAF), are clearly oversold and may come off current lows. Another ETF that is worth paying attention to is the PowerShares Halter USX China Index (NYSE:PGJ). This ETF is designed to track American companies doing business in China and is clearly paring better in dire market conditions like this week. As long as there is a mismatch between Chinese and American equity markets, PGJ offers some relief if American stocks have the upper hand.

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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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