nexttrade: Rally in Rubber Glove Sector losing steam

Monday, February 27, 2012

Rally in Rubber Glove Sector losing steam

Rubber prices have recovered somewhat after a sharp correction over the past one year. The earlier downtrend in rubber prices, coupled with the strengthening of the USD in second half of 2011, had given the rubber glove sector a much needed respite. We have seen a recovery in the share prices of a few rubber glove producers.

Chart 1: Rubber price chart as at Feb 24, 2012 (Source: Rubbernet)

Chart 2: USD price chart as at Feb 24, 2012 (Source: Stockcharts)

However, the weakening of the USD in the past two months (on fear of Fed's renewed loosening of its monetary policy in order to spur economic growth as well as to fight off the threat of deflation) and the small rebound in the rubber prices, had cut short the rally in the rubber glove sector. We can see that two of the rubber glove producers, Kossan & Supermx had broken their respective uptrend line while Topglov had pulled back to its uptrend line. How these stocks would fare depends on the cost of raw material (especially, rubber latexx) and the movement of USD.

While I believe the rubber glove sector had bottomed & could begin to rise on its next upleg, it is advisable to avoid adding aggressively our position in this sector due to the reasons stated above. The preferred strategy is slow accumulation as the share prices ease back to the next strong horizontal support (which is probably 10% away).