What's the Rally in Glove Stocks Telling Us?

In the past few days, glove stocks have risen steadily. That steady ascent has gone exponential yesterday and today. The rally has also spilled over to stocks that would benefit from Covid-19, such as Ocncash (producer of non-woven material used in the production of face mask) etc. 

Covid-19 pandemic has created increased demand for gloves, which led to higher sales volume and higher average selling prices. The sharp and urgent rally in glove stocks seem to suggest that concern or fear of the pandemic has returned. Is this due to the opening up of the economies around the world, which is causing increased concern or fear of a spike in infection cases?

If you looked at the composite chart below- made up of FBMKLCI, Harta and Topglov- you would see 2 prior periods when the share prices of Harta and Topglov (our top 2 glove makers) rose while FBMKLCI weakened. In both of these periods, Harta and Topglov would eventually peak and roll over, while FBMKLCI would drop significantly. These periods are denoted as A and B, respectively. 

Chart: FBMKLCI, Harta and Topglove's daily chart from Sep 2019 to May 13, 2020 (Source: Kenanga's BTX chart)

This is my interpretation; when the fear of the pandemic started to rise, investors would buy into Harta and Topglov while selling off other stocks. This led to higher prices for Harta and Topglov while FBMKLCI weakened. When the fear of the pandemic overwhelmed investors' profit-seeking instinct, the sell-off would be broad-based - including a sell-off in glove stocks too.

If this interpretation is accurate, then we may be seeing a build-up of fear of the pandemic which has led to the current rally in glove stocks while FBMKLCI has been moving sideways. When will the fear of the pandemic overwhelm investors' profit-seeking instinct, leading to a sell-off in the market? Only time will tell.

For those who have glove stocks or stocks related to Covid-19, such as Ocncash, Hexza, HLT, it is advisable to take some profit in this super-charged environment. Good luck.