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Overbought China stocks in danger on August 19

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warning2 August 19, 2010 (Chinavestor) China TechFaith Wireless (NASDAQ:CNTF), Rino International (NASDAQ:RINO) and China Digital TV Holdings (NYSE:STV) are overbought, according to the chart below. China Mobile (NYSE:CHL) is more balanced fro ma technical point of view than it was on Monday, but earnings hang over the stock before the open on Thursday.

By definition, 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.

Now looking at China TechFaith Wireless (NASDAQ:CNTF) from a technical point of view, the stock rose from $2.8 to $3.3 in just five straight sessions and became overbought.

Rino International (NASDAQ:RINO) looks very similar to CNTF,  just as is China Digital TV Holdings (NYSE:STV). Downside risk now exceeds upside potential for these stocks.

China Mobile (NYSE:CHL) is not overbought but investors have to notice that tit is trading well above her normal trading range. But as earnings came out today, Hong Kong listed H-shares of the company fell 3.2 percent, something that is indicative of a similar drop on the NYSE for its ADRs.

OB_2010819

There is not much change on the oversold end of the China stock universe this morning. Not a sinlge China ADR is trading at extremes, giving no indication of an imminent pop up for any ADR.

OS_2010819

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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