Technically speaking – The End of The Game?

The melody can’t find you
I’m incomplete without you
I guess we’ve reached the end of the game
Ooh, hit me

Weezer, 2020

For a lot of investors, 2020 has been a year of good (mis)fortune. If anyone managed to ride in early on the glove euphoria – and hopefully managed to hop off midway – they would be one happy camper. If you haven’t managed to sell, then unfortunately, it might be just a bit too late.

Earlier on in 2020, the market optimism was carried by the four latex horsemen of TopGlove, Supermax, Hartalega and Kossan. Investors were happy that glove companies seemed to have found their place in the pandemic. Some even went as far as to express unhappiness whenever news of a potential cure or vaccine broke out – because god forbid people were saved, else no one would be buying gloves anymore.

Anyhow, past midway through the year, prices of glovemakers encountered some turbulence, as the world began to see light at the end of the tunnel. Traders live for some volatility and many would still be able to draw some profits through this bout of ups and downs.

Now as we approach the end of the year, and with the announcement of a vaccine, hope, it seems, has fizzled away.

Let’s take a look at Topglove, whose marketcap eclipses even some major banks in Malaysia:

Danger, Will Robinson!

Topglove, is currently sitting on the neckline of a large, Top-Reversal pattern, which many would recognise as a double-top. This support level of RM6.60 is a critical area, and Topglove must maintain its price above this level, else it has a chance of diving all the way to RM3.40 levels, which isn’t ideal for many at this point.

Next up, is Supermax:

Slowing down

Supermax has been given some attention this year, as profit forecasts have soared to the maximum and research houses have been racing to upgrade price target to max levels. Throughout the pandemic, investors have been – or have been seemingly trying – to push prices to match Topglove. In any case, just like Topglove, hope has fizzled out and Supermax has been creating lower highs. In the short term, Supermax is sitting on a reverse cup and holder formation, with a target price of about RM6.10. Might I add, if this happens, RM6.10 is a critical level which Supermax must hold, or else it might face the same potential fate as Topglove is currently on the precipice of.

I also want to look at the other two latex horsemen, Kossan and Hartalega. Currently, there are no clear patterns to their price movements, but, I can safely say they are somewhat bearish:

As you can see, there are clear tops, and lower highs being formed by both of them. I trust that at this point, you can deduce where their support levels are.

Why is this important?

For a major part of the year, the KLCI has been carried by glove stocks, substract the two that are there (Topglove and Hartalega), the index would be further down in the dumps.

But since November, we have since witnessed some optimism emerge in the KLCI:

Head above water

In the last post, I talked about how the KLCI has attempted to break the 1620 levels several time this year, and where it would wiggle around about if it didn’t manage to. Well this time, it looks like it has managed to surpass that level and has been keeping itself floating atop – which is encouraging. Will it last? Who knows, I still have my doubts, but time will tell.

Okay, but why is this movement different? And what does it have to do with glove stocks? Recall that the index has largely been kept afloat by glove stocks throughout the year, and take a look at this:

A whole new world? Percentage change in performance since 1st November

Since the first of November, the KLCI has been up by about 10%, whilst Topglove and Hartalega – both sizeable index constituents – have performed terribly…err…terrible. To me, this seems to indicate that investors are beginning to be more upbeat about performances in other sectors, and are now shifting away from the glove players.

For traders, perhaps it is a time to move away from glove linked themes and into other themes – what they are, I do not know yet, but energy stocks seem to be in play right now.

Seeds of optimism regarding are starting to appear, and no doubt some of it will blossom into the market. As to how sustainable they are, I have my doubts. Deep in my heart of hearts, whilst we may be looking at the end of the tunnel when it comes to the pandemic, we might still be unaware of the near term economic damage that might just pop up around the corner.

But, as traders, we take what is given to us, and go along with the trend. As always, keep to your trading plan, take your profits, cut your losses, live to trade another day.

I’d like to know what you think too, do you agree? Do you disagree? Why? Share your thoughts, and in the meantime, stay safe!

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.