(Oct. 3, 2009 - Chinavestor) The week was full of economic news in the U.S., from home prices to manufacturing activity, factory orders, consumer spending and the monthly reading on unemployment on Friday. There was less activity in China as the country prepared for week long celebrations of the 60th anniversary of communist rule in China. It was evidenced by thin volume this week in Shanghai as investors didn't want to hold positions over the holiday. But as little news as came, it was very encouraging. The purchasing managers' index rose less then expected in August while manufacturing activity continued to recover. The central bank made some confidence building steps by signaling that loose lending will be in place for the rest of the year aimed at making up for the loss in exports.
Despite positive news from China, American listed Chinese ADRs fell victim to negative market sentiment as unemployment rose to 9.8%, suggesting that the recovery will be gradual and longer than many hoped.
Commodities fell, pressuring resource, metal and energy stocks. Aluminum Corp. of China (NYSE:ACH) fell 5% in the last two days and became oversold. However should U.S. markets continue to fall, expect ACH continue to slide. To see how much ACH is influenced by the DJIA, see this comparison chart here.
China Petroleum and Chemical Corp. or Sinopec (NYSE:SNP) slid just under 5% for the week but don't expect much further weakness from Asia's largest refiner. Since Sinopec (NYSE:SNP) makes more when the price of oil goes down, the price of this large cap China stock is tied to the crude at least as much as to market sentiment. Given the unusual drop in the stock price of China Petroleum & Chemical Corp. (NYSE:SNP) this week, Sinopec has a chance to a quick recovery.
Petrochina (NYSE:PTR) has a similarly unusual drop but the stock price is not as oversold as that of Sinopec (NYSE:SNP). For this reason Petrochina is less likely to bounce back but rather follow overall market sentiment.
As much as useful, the overbought / oversold indicator is still just one piece of information and investors shouldn't trade based on this technical reading alone. This is why Chinavestor subscribers receive email alerts helping them to trade better. To give you an idea how our email alert worked this week, consider this email alert that went out on Tuesday, 9/29/2009.
Dear Advanced member,
If you want to know what stocks I think are going to outperform the upcoming week and thus made it to the Weekly Stock Update, please Register here. For subscriber benefits, visit the "Premium Content" page.
Most oversold China stock of the week
Looking at Chinese momentum stocks, Hurray! Holdings (NASDAQ:HRAY) is the one that ended the week on a high tone. Stock price for Hurray! (HRAY) is up over 10% for the week on no particular news. This is a reminiscent of other smaller cap NASDAQ listed China stocks that popped just to see them on the retreat after a few days of trading. For reference, please look up the following stock charts:
- China Automotie Services (NASDAQ:CAAS) chart here.
- Sinovac (AMEX:SVA) chart here.
- Asiainfo Holdings (NASDAQ:ASIA) chart here.
For additional stocks like Hurray! Holdings (NASDAQ:HRAY) see WuXi Pharma (NYSE:WX), China TechFaith Wireless (CNTF), and KongZhong Corp. (KONG).
And this is for giggles. I wrote an article just a month ago "Hot money chasing small cap China stocks" highlighting this phenomena. you should read the negative commentary i got for telling investors to avoid Sinovac. That stocks was trading just around $10 at that time and I said this is just a sham. Now that the stock dropped 26% from its high - see related chart - I wonder how much those naysayers lost on this stock.
Rino International (NASDAQ:RINO) is one NASDAQ play that I want to highlight though. The stock jumped 45% last month with heavy underlying volume. Additionally, stock price for Rino (RINO) ended the week on a high tone, defying overall market trend. This in turn suggests that Rino Int. (NASDAQ:RINO) has mustered enough momentum to weather the storm and stay well above the $20 level.
Looking forward, I expect the Hang Seng index to follow American market sentiment. That said China stocks will trade along the American market until the Shanghai Stock Exchange opens later this week. With strong economic data and uncertainties behind, Shanghai can give Chinese stock much needed support, but that is just going to be at the second part of the week.
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