Tuesday, October 06, 2009

Topglove- leading the rubber glove theme play

Topglove broke to the upside of its pennant formation two days at RM7.30 (see Chart 1 below). This may be spurred by re-rating of the stock by two brokering firms, Affin & HDBS (as reported by Business Times [here] & the Edge [here], respectively). Investors may also be drawn to the rubber glove manufacturers due to recent reports that the H1N1 flu may have mutated.

The previous upside breakout for Topglove in June saw the stock gaining RM1.20 from RM6.30 to RM7.50. If the stock put in a similar gain in the present breakout, then Topglove may go as high as RM8.50. Topglove is presently trading at RM7.86 (as at 11.41 am).

Chart 1: Topglove's daily chart as at Oct 6, 2009_11.20am (Source: Quickcharts)

From the weekly chart, we can see that Topglove has broken above its long-term downtrend line, which stretches back to its all-time high of RM10.00 recorded in December 2006. Its upcoming overhead horizontal resistance level is at RM8.00 & RM8.50.

Chart 2: Topglove's weekly chart as at Oct 6, 2009_11.15am (Source: Quickcharts)

The breakout in Topglove has spurred strong buying for other rubber glove manufacturers. In the present cautious market, the rubber glove theme play looks like the only game in town. This should draw in cashed-out traders who are looking for a punt. I expect this theme play to last from a few days to 1 or 2 week(s).


JR said...

Hi Mr. Alex,

Any reason KOSSAN is lagging its peers in the glove sector?

Apperciate your comments.


Alex Lu said...

Hi JR,

Kossan has been dragged down by its technical rubber products division, which produces automotive products. It has also been affected by forex losses from the hedging its receivables.

In my opinion, these reflect a very cautious management team in Kossan but unfortunately the outcome was negative and this impact investors' perception- resulting in lower share price.