Trading the Good China

As US stocks ramp toward ever new highs, stocks in China are still a mixed bag. Here are some of the Chinese ETFs and Chinese stocks that have begun to pullback toward oversold levels and may begin attracting buyers over the next few days.

Shares of China Mobile Ltd. (NYSE: CHL) are pulling back for the second time since the stock bounded back into bull market territory in the second half of December. Selling off for five days in a row to start the month of March, shares of CHL finished twice in technically oversold territory before buyers returned. Over the next three days, traders sent CHL higher by more than 7%, to new, 52-week highs.

Since then, profit-taking has allowed the stock to drift lower, a drift that accelerated with a drop of more than one and a quarter percent on Monday. Now down three out of the last four sessions, China Mobile Ltd. is back in technically oversold territory above the 200-day moving average. The stock has a positive edge of half a percent in the short-term, and neutral ratings of 6 out of 10.

In addition to short-term weakness in the iShares FTSE/Xinhua China 25 ETF (NYSE: FXI) (see my “Trading By the Numbers” column from Monday), other Chinese ETFs such as the Guggenheim China Small Cap ETF (NYSE: HAO) are also trading lower and reaching levels where buyers historically have been inclined to come off the sidelines and into the market. Trading in oversold territory after pulling back for two out of the past three sessions, HAO slipped back into bear market territory late in Monday’s session. In this, HAO’s current pullback mimics its most recent pullback, when a two-day sell-off ending just below the 200-day moving average led to a five-day rally of more than four and a half percent.

Traders and active investors looking for other short-term trading opportunities in Chinese stocks and ETFs may want to consider the pullback in Youku Inc. (NASDAQ: YOKU).

Down more than 3% on Monday, shares of YOKU have closed lower for five days in a row, and are now trading in short-term oversold territory above the 200-day. Note that YOKU only has been trading in bull market territory since the beginning of March, and the sell-off in the stock has created the most oversold conditions in YOKU in more than a month. The stock is set to take a positive, short-term edge of just over 3% into trading on Tuesday.

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David Penn is Editor in Chief of