Last Friday was a brutal day across stock markets worldwide. The KLSE saw nearly 1000 counters down while the Dow Jones Industrial retreated 905 points at the close. Commodities were not spared either, with crude oil dropping over 13%, while gold had small gains from some safe haven buying.

Back at the KLSE, a sense of déjà vu played out with the Covid-19 themed stocks from last year. Glove makers and stocks related to the manufacturing of Personal Protective Equipment (PPE) made a stunning comeback.

So does the rally this time have legs or is it another failed rally like so many we have seen this year? It is probably too early to tell but from a technical perspective, we will take a look at some potential targets to aim for, if a substantial rally does actually materialize.

Let us examine 4 of my favourite covid themed stocks. We will use the fibonacci (FIB) retracement levels as possible target areas.The FIB retracement levels are measured from the pandemic lows in March 2020 to the highs in August 2020. (Note: prices on chart have been adjusted for bonus issues)

1. TOPGLOVE (7113)

• At 61.8% FIB retracement level: RM 4.83

• At 50% FIB retracement level: RM 5.77

2.  SUPERMAX (7106)

• At 61.8% FIB retracement level: RM 5.10

• At 50% FIB retracement level: RM 6.40

3. CAREPLUS (0163)

• At 61.8% FIB retracement level: RM 2.34

• At 50% FIB retracement level: RM 3.01

4. TEK SENG (7200)

• At 61.8% FIB retracement level: RM 0.63

• At 50% FIB retracement level: RM 0.78

INTERESTING OBSERVATIONS

1. All 4 stocks were trading at or near the 52-week lows prior to the big rally on Friday of 26 Nov 2021.
2. The downtrendline that has been in place since the highs’ in 2020 has just been broken.
3. Newsflow for the entire glove sectors and PPE related stocks has been very negative, may indicate possible  downside exhaustion?
4. Macquarie Equities Research has also started coverage on glove stocks on 19 Nov 2021 with the view that the negatives in the sector may already be priced in.

CONCLUSION

The FIB retracement levels may sound quite impossible to achieve given how far down the prices have come. However, at the start of the pandemic, few would have predicted that the Covid 19 themed stocks could have reached those stratospheric price levels that they did. The magnitutude of the subsequent crash in prices also took investors by surprise.

The bottomline is, markets are so unpredictable that we have to keep an open mind to all posible scenarios. At the end “Mr Market” will decide where it wants to go. We can only trade the probabilities with the information and technical tools that we are equipped with!  

Have a good week ahead and happy trading!

Disclaimer: This blog is created for sharing of trading ideas only. It is not in any way or form meant to be an inducement or recommendation to buy or sell any stocks. Consult your financial consultant before making any financial investments.