KUALA LUMPUR (June 18): Glove counters hit yet another speed bump today, leaving some anxious investors wondering if the rally in these stocks has lost steam.

Top Glove Corp Bhd was the biggest loser on the FBM KLCI, dropping RM1 or 6.37% to RM14.76 while Hartalega Holdings Bhd fell 3.69% or 44 sen to RM11.50.

Of the other two big players, Kossan Rubber Industries Bhd dropped 5.36% or 45 sen to RM7.95 while Supermax Corp Bhd declined 3.88% or 28 sen to RM6.93.

The smaller cap glove makers were not spared as well, with Careplus Group Bhd dropping 4.51% to RM1.27, Rubberex Corp Bhd falling 4.55% to RM2.73 and Comfort Gloves Bhd closing 0.37% lower at RM2.72.

As a result, the Bursa Malaysia Healthcare Index was the worst performing index today, closing 71.89 points or 3.2% lower at 2,202.21.

Most of the stock chartists contacted today with regards to the price trend of the glove counters said a near-term pullback is deemed necessary for the next up leg.

EquitiesTracker Holdings Bhd chief market strategist Benny Lee told theedgemarkets that the glove stocks are currently entering a technical pullback, which is fairly normal considering that they are way overbought — their monthly RSI reading currently stands well above the overbought region of 70.

“As investors start to digest the reported quarterly results and start to justify the fundamentals against the sharp move in share prices, this is a very normal pullback. The prices had gone up too fast,” said Lee.

Nevertheless, he said the current retracement could entice strong support, especially if prices drop around 50% from their peak levels, given the prevailing strong interest in the sector on the backdrop of a second wave of COVID-19 infection currently still developing.

Stephen Soo, senior technical analyst at TA Securities Holdings Bhd, concurs that glove stocks are currently entering into a healthy pullback phase after seeing hyperbolic runs in the past weeks.

“Glove counters are entering into consolidation mode probably in the next few weeks, which fits well to building a stronger base to prepare for the next up wave,” he said.

As indicated by the Bollinger Bands indicator in stock charts, Soo said glove stocks could be poised for some further weakness in the near term.

Following their exponential runs, glove stocks have been trading above their upper Bollinger Bands. As such, Soo thinks glove stocks “could still have room to fall in the near term, until their share prices reach the middle band of the Bollinger indicator”.

The Bollinger Bands indicator provides a relative judgement of high and low prices of a stock. By definition, prices are high at the upper band (an indication that they are poised for a pullback) and low at the lower band (boding well for rebounds).

Maybank Investment Bank Bhd senior chartist Nik Ihsan Raja Abdullah thinks that the selling pressure in glove stocks will fade soon and accumulation of these stocks could be considered especially when they reach crucial support levels.

“The prices [of glove stocks] declined on the back of lower trading volume over the past five days, suggesting the current selling pressure has started losing steam. [And hence] we expect the uptrend to continue once the selling pressures fully normalize,” he said.

Nik Ihsan reminded investors to especially consider setting trading stop-losses slightly lower at critical support levels, and watch out for bullish reversal patterns in a shorter time frame.

Turning to individual stocks, Nik Ihsan said Top Glove is considered the strongest among all, as the current correction is still regarded as mild, considering that the stock is still trading above the 22-day exponential moving average (EMA) support line of about RM14.

“Negative reading in both Stochastic and MACD (Moving Average Convergence Divergence) suggest further decline although we expect the downside risk potentially to be capped within immediate support zones between RM13.30 and RM14.30,” he said.

As for Harta, he holds the view that the correction for the stock is ongoing as indicated by negative readings in both its Stochastic and MACD.

“The stock is set to test the 22-day EMA line of RM11.20 in the near term and the support at 38.2% Fibonacci Retracement (FR) level of around RM11. Lower support is set at RM10.60, which was the price that the stock gapped up back on May 27.”

FR levels are widely used by stock chartists to determine the key support and resistance levels, and one of the key thresholds is the 38.2% mark.

For Kossan, Nik Ihsan views that minor correction for the stock is still ongoing as it has tumbled below the 22-day EMA line of around RM8.20, despite the RSI reading having now approached oversold territory.

“Next, the stock could test the lower support within 38.2% FR level and the 50-day EMA line in the near term of around RM7.20 to RM7.60,” he said

As for Supermax, the stock is facing stiff challenges towards its current support at the 22-day EMA line of around RM6.70. Should the stock fall below this support level, it could continue to fall toward the 38.2% FR level of around RM6.19.

Moving on to Comfort Gloves, the stock has traded below the 22-day EMA line of RM2.82 on the back of negative readings in both Stochastic and MACD. However, Nik Ihsan thinks the downside risk for the stock could potentially be capped within the 50% FR level and the 50-day EMA line of between RM2.28 and RM2.48.

Lastly, for Careplus Group, Nik Ihsan views that the stock’s current correction could be completed within the 61.8% FR level — slightly below the 22-day EMA line, between RM1.11 and RM1.19.